Updates for early European afternoon trading

By Samuel Indyk and Tom Westbrook

LONDON, May 8 (Reuters) - Oil edged higher and stocks slipped on Friday after the U.S. and Iran exchanged fire in the Middle East, though many equity markets - particularly in Asia - remained on track for strong weekly gains on booming AI demand.

Benchmark Brent crude futures LCOc1 rose about 0.5% to $100.50 a barrel, while European stocks .STOXX fell 0.6% and U.S. stock futures EScv1 gained 0.5%.

Traders were also watching losses for Britain's ruling Labour Party in local elections, which could pressure Prime Minister Keir Starmer, though sterling inched up and UK assets broadly tracked European peers as results trickled in. GBP/

MIDDLE EAST CLASHES

The U.S. and Iran exchanged fire in the Gulf and the UAE came under renewed attack, testing a month-long ceasefire. Both sides played down the situation, leaving investors uncertain.

"The market seems to be taking every chance to price in a quick end to the war," said Jan von Gerich, chief analyst at Nordea.

"But it seems unlikely there's going to be an agreement. I still think there are going to be disruptions in the Strait (of Hormuz) for a longer time and it won't be resolved any time soon."

European stocks were lower. The pan-continental STOXX 600 .STOXX was down 0.6%, while major bourses in Frankfurt .GDAXI and Paris .FCHI were off about 0.9%.

Asian equities slipped from recent highs but remained on track for a robust week, supported by strong revenue and spending plans from U.S. AI hyperscalers, which have boosted regional chipmakers.

MSCI's broadest index of Asian shares outside Japan .MIAPJ0000PUS fell 0.9%, although South Korea's KOSPI .KS11 inched up 0.1%, bringing its weekly gain to more than 13.5% - its largest since 2008 - helped by rallies in Samsung 005930.KS and SK Hynix 000660.KS.

Taiwan's benchmark was up 7% this week and Japan's Nikkei .N225 rose 5.4%. Europe's STOXX 600 was heading for a 0.2% weekly rise, while the S&P 500 .SPX and Nasdaq .NDX were up 1.5% and 3%, respectively.

DOLLAR INCHES LOWER

The dollar edged lower and was set for a second straight weekly decline, while the yen remained in focus after Japan intervened in currency markets in early May to stem its slide, a source familiar with the matter told Reuters. FRX/

The dollar was last down 0.1% to 156.77 yen JPY=, and was headed for a second weekly fall against Japan's currency. Gains beyond 155 have proved difficult to sustain following suspected intervention totalling nearly $70 billion since last Thursday.

The euro EUR= last bought $1.1767, while China's yuan CNY=CFXS, Asia's best-performing currency since the war broke out, hovered near 6.8 per dollar, close to its strongest since 2023.

U.S. JOBS AND UK ELECTIONS IN FOCUS

Investors are awaiting Friday's U.S. nonfarm payrolls report, with economists expecting 62,000 jobs to have been added in April after a 178,000 increase in March, a Reuters survey shows.

"The labour market is still holding up reasonably well," Nordea's von Gerich said.

"Since the focus is on the Middle East and the impact comes via inflation more than growth, especially in the U.S., maybe the payrolls report is not quite as crucial as it has been sometimes in the past."

Local election results across Britain showed heavy early losses for Labour, although Starmer said he would not resign.

"Gilts are already under scrutiny due to inflation risks, and adding political uncertainty to the mix could further push (global) investors to look elsewhere," said ING analysts.

Britain's 10-year gilt yield GB10YT=RR was down 3.5 basis points at 4.91%, although remained close to a three-decade high.

TARIFFS

A U.S. trade court ruled President Donald Trump's latest 10% temporary global duties are unjustified under a 1970s trade law. But analysts expect a swift appeal and little overall impact on U.S. levies.

Treasury yields tracked crude prices higher on Thursday as traders worried about inflation, but did not move much more on Friday, with the benchmark 10-year yield US10YT=RR at 4.38%.

Bitcoin BTC= was drifting towards a sixth weekly gain in a row at $80,265.