GLOBAL MARKETS-Stocks firm as Fed-fired volatility cools; dlr firm

* World shares gain as fears of early Fed tapering ease

* Dollar above 101 yen, but loses ground on euro after Ifo

* Oil over $110 a barrel as market eyes Iran talks

* Gold on track for near 4-pct weekly drop

By Richard Hubbard

LONDON, Nov 22 (Reuters) - World shares were set to end a volatile week firmer on Friday and the dollar hovered near a 4-month high against the yen as worry dissipated about an early Fed move to start winding down its stimulus policy.

U.S. stock index futures signalled that Wall Street was unlikely to advance much further after the Dow Jones closed above 16,000 for the first time ever on Thursday.

The volatility has cooled as more investors realise that a Federal Reserve move to scale back its bond-buying programme, which will probably begin in the first quarter of next year, does not necessarily mean official interest rates will rise soon afterwards.

"People have got the message," said Laurent Fransolet, head of European fixed-income strategy at Barclays (LSE: BARC.L - news) . "Everyone is starting to differentiate between tapering and tightening."

Solid U.S. data this week has also eased concern that weaker growth in China and the euro zone may set back the fragile global economic recovery, pointing to a gradually improving outlook for 2014 albeit with less Fed money printing.

The mounting investor confidence over the outlook had lifted the MSCI (NYSE: MSCI - news) 's global benchmark for shares by 0.2 percent on Friday though it was barely changed over the week.

Earlier MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent after shedding 1.4 percent on Thursday. Japan's Nikkei, getting an extra boost from the weaker yen, added 0.1 percent to edge close to its highest level of the year.

"The markets have got a lot of liquidity and it's going to be a gentle lift for equities," said Mike Gallagher, managing director at IDEAglobal. "We might see it slow waiting for the U.S. employment report (due Dec. 6) and the December meeting of the Fed."

Europe's share markets were largely steady with the broad FTSEurofirst 300 index 0.1 percent firmer at midday to be within a whisker of a 5-1/2-year closing high reached at the start of the week.

A closely watched measure of stock market volatility, the Euro Stoxx 50 Volatility index, sank to a near seven-year low.

"Investors are feeling relaxed for the rest of 2013, but a little less relaxed for the start of 2014," said Vincent Cassot, head of equity derivatives strategy at Societe Generale (Paris: FR0000130809 - news) .

DOLLAR MIXED

The dollar gained strength against the yen despite signs of a more delayed Fed tapering schedule, reaching a peak of around 101.20 yen for the first time since July.

It has gained from the swing higher in long-term U.S. Treasury yields which have expanded the dollar's rate advantage over the yen. Yields on 10-year Treasuries were at 2.77 percent , compared to 0.64 percent for JGBs.

Comments from Bank of Japan Governor Haruhiko Kuroda that the yen was not abnormally low and that there was no sign of a bubble in shares added to the yen's weakness.

However, the greenback fared less well against the euro, which bounced on Thursday when European Central Bank President Mario Draghi shot down a report that the central bank was considering cutting a key interest rate below zero.

That had lifted the common currency to $1.3490 from a one-week low of $1.3399 before news on Friday of a surprise rise in German business morale in November added to its allure to lift it further to around $1.3530.

Currencies linked to commodities and global growth took a hit. The Canadian, New Zealand and Australian dollar all fell sharply.

Among commodities, Brent crude oil held near $110.55 a barrel, adding nearly 50 cents to the $2 gained on Thursday to take the price to its highest in a month.

The rally has been fed by news of dwindling stocks and refinery glitches in the United States and Europe as well as signs as that an imminent breakthrough in talks over Iran's nuclear programme looks less likely.

U.S. oil was off 9 cents at $95.35 a barrel, but that followed a rise of $1.59 in the previous session.

After reaching a 4-1/2-month low of $1,236.29 an ounce on Thursday, gold recovered slightly to $1,243.80. It is still on course for its biggest weekly drop in more than two months.