- Hopes for diplomatic end to Ukraine standoff
- Oil eases on prospect of Iran returning to market
- Safe haven dollar, yen weaker
- Bitcoin slide continues after Thursday's tumble
LONDON, Feb 18 (Reuters) - Wall Street was set to mirror Europe's modest advance in stocks as investors drew comfort from a high-level diplomatic attempt next week to avoid a Russian invasion of Ukraine even though shelling continued there for a second day.
S&P 500 futures were up 0.5% and Nasdaq futures gained 0.7% ahead of the opening bell and a long weekend on Wall Street, with stock markets closed on Monday for Presidents Day.
U.S. Secretary of State Antony Blinken agreed to a meeting with Russia's foreign minister Sergei Lavrov next week, raising the prospect of ending the standoff over Ukraine, but shelling in the eastern part of the country continued on Friday.
"The stock market environment is likely to remain exceptionally dependent on geopolitical and inflation developments, which could trigger significant market volatility over the next few weeks and months," analysts at UniCredit bank said.
Oil was headed for a weekly fall as the prospect of extra supply from Iran returning to the market eclipsed fears of a possible supply disruption arising from a Russian invasion of Ukraine.
The STOXX index of 600 European companies was up 0.2% at 465 points, six percent below the lifetime high hit in the first week of 2022.
Some good corporate news helped to keep stocks above water.
In the United States, Deere & Co, the world's largest farm equipment maker, raised its annual profit forecast.
Renault jumped 1.9% as the French carmaker swung into profit in 2021, while Finnish drug manufacturer Orion rallied 22% to the top of the STOXX 600 following positive trial results for its prostrate cancer treatment.
On the data front in Europe, British retail sales grew faster than expected in January, recovering about half the losses suffered when a wave of coronavirus cases caused many shoppers to stay at home during December.
The MSCI All Country stock index was little changed.
Worries over the pace of anticipated interest rate hikes by the Federal Reserve have largely been priced into markets for now, helping to underpin sentiment, said Seema Shah, chief strategist at Principal Global Investors.
"It looks like because of geopolitical risk, it's pushed back the chances of a 50 basis point hike, the markets have reduced their expectations," she said.
"The market is getting close to peak in terms of rate expections. Once you hit that peak, things should settle down."
Federal Reserve officials remain split over how aggressively they should hike interest rates from next month. Fed funds futures price about a 1/3 chance of a 50 bps hike in March.
U.S. existing home sales are due later, though all eyes will be on the March 10 consumer inflation report ahead of the Fed's meeting later that month.
SAFE HAVENS EASE, CRUDE SINKS
The safe-haven Japanese yen fell back on Friday and risk-sensitive currencies, such as the Australian dollar, advanced as investors took comfort from a plan to hold talks between the United States and Russia over the crisis in Ukraine.
The dollar rose 0.3% on the yen , reaching as high as 115.3 yen, having touched a two-week low of 114.79 in early Friday trading.
Gold eased 0.2%.
Asian shares were weaker, with the MSCI's broadest index of Asia shares outside Japan last down 0.7%.
Tokyo shed 0.4%, Hong Kong 1.8%, Sydney 1%, paring deeper morning losses.
In treasuries, the benchmark 10-year yield was slightly lower at 1.9668%. Two-year yields were little changed at 1.4882%.
Oil dipped and Brent crude futures were last down 1.8% on Friday at $91.30 a barrel, more than 4% below Monday's peak, and U.S. crude fell 1.9% to $90.02 a barrel.
Sources at OPEC+ said it will work to integrate Iran into its oil supply-limiting accord should agreement be reached on reviving its nuclear deal with world powers.
After a 7.6% tumble late on Thursday, bitcoin fell a further 0.3% to $40,419.
Editing by Kenneth Maxwell, Christina Fincher and Chizu Nomiyama