* Wall Street set for positive open after CPI
* European stocks weak, Bund yields at near year high.
* Dollar stronger, boosting Japanese export stocks
* Euro weakens on indications of Irish EU "no" vote
By Jeremy Gaunt, European Investment Correspondent
LONDON, June 13 (Reuters) - European stocks recovered and
Wall Street looked set for a positive start on Friday after U.S.
inflation data fell short of investors' worst fears about rising
costs.
The dollar remained broadly firmer with early signs that
Irish voters may have voted "no" to a new European Union treaty
adding to euro weakness. Ten-year euro zone government bond
yields were at their highest in nearly a year.
U.S. CPI data came in with a higher-than-expected
year-on-year rate of 4.2 percent in May, up from 3.9 percent a
month earlier.
But investors focused on core inflation -- minus energy
prices -- which was an expected 0.2 percent month on month.
"It's not as bad as it looks. It's pretty concentrated in
the energy sector," said Lindsey Piegza, FTN Financial market
market analyst in New York. "What is scary is the year-over-year
number. You never wants to see a 4 (percent) handle."
Inflation worries currently preoccupy financial markets and
were hitting stocks and bonds in Europe while bosting the
dollar.
"Inflation is a major negative factor for equities," said
Arthur van Slooten, strategist at Societe Generale, in Paris.
The FTSEurofirst 300 <> index of top European shares
was down 0.2 percent, well off its lows. It gained 0.9 percent
on Thursday, snapping a six-session losing run.
Earlier, Japan's Nikkei stock average <> rose 0.6
percent, primarily on the view that exporters would benefit from
a weaker yen if the dollar rises.
Still, the benchmark Nikkei average posted its worst weekly
fall in three months as worries about rising inflation and
interest rate hikes dampened investor appetite.
The Nikkei ended the day up 85.13 points at 13,973.73. Over
the week, it lost 3.6 percent.
Crude oil <Clc1> was down slightly in the day but still
above a heady $135 a barrel.
DOLLAR, BONDS
The dollar rose against the euro and the yen and was on
track for its best week in over three years against a basket of
currencies.
Traders were sensitive to comments from Group of Eight
finance ministers meeting in Japan over the weekend.
"If the tone of (the G8) statement is unchanged from the
last meeting when coordinated action was mentioned, this would
give more support to the dollar," said Michael Klawitter,
currency strategist at Dresdner Kleinwort in Frankfurt.
The dollar index -- against major currencies -- was up 0.6
percent at 74.269. It was up more than 2 percent on the week and
heading for its biggest weekly gain since April 2005 <.DXY>.
The euro was down 0.8 percent at $1.5319 <EUR=>, with losses
exacerbated by the early indications from Ireland. A "no" vote
could scupper EU reform plans.
The dollar was up 0.3 percent against the yen at 108.28
<JPY=>.
Inflation worries continued to hit fixed income. Bund
futures hit their lowest price since July <FGBLc1> and the
10-year euro zone government bond yield was at 4.635 percent
<EU10YT=RR>, also having hit the highest since July.
(Additional reporting by Blaise Robinson; Editing by Gerrard
Raven)
