Stock markets and oil prices rallied on Friday on hopes China would roll back some of its economically-painful policies surrounding COVID.

The dollar dropped as investors awaited the release of US jobs data later in the day, seeking fresh insight into the state of the world's top economy and the outlook for interest rates.

"Stocks jumped in anticipation that the Chinese government would relax its zero-COVID policy from March next year," noted Russ Mould, investment director at AJ Bell.

Stocks jumped in anticipation that the Chinese government would relax its zero-COVID policy from March next year- Russ Mould, investment director at AJ Bell

The optimism also lifted oil prices as traders eyed rising demand for crude on the news out of China.

In foreign exchange, the pound won back some ground against the dollar, a day after tumbling as the Bank of England said the UK economy could face a two-year-long recession that it believes has already begun. The BoE on Thursday also lifted its main interest rate by 0.75 percentage points, the most in 33 years in efforts to contain runaway inflation.

The week also saw the Federal Reserve hike its key rate by the same amount, as central banks try to cool decades-high inflation. With the Fed pointing to a still-strong labour market as a key reason for not shifting from aggressive rate-tightening, traders see another strong figure on Friday as evidence that officials will carry on with large increases to borrowing costs.

"Friday's payrolls will be the last vital data point this week, as signals on the labour market remain crucial to the Fed's path forward," said SPI Asset Management's Stephen Innes.

In Asia, Hong Kong's Hang Seng Index jumped almost nine per cent this week after an unverified statement suggested officials in Beijing were discussing a change to its zero-COVID policy. The gains continued despite pushback from authorities, and after President Xi Jinping reasserted the strict strategy at a major Communist Party gathering last month.