SINGAPORE/LONDON - European shares rose on Friday, following peers in Asia, which hit a three-month high on AI optimism, though gains were tempered by uncertainty over developments in Ukraine and the upcoming German elections.

Europe's broad Stoxx 600 nudged up 0.2 percent, reversing two days of declines and pushing back towards a record high hit earlier in the week.

Germany is one major focus in Europe, and shares have been volatile this week as investors try to position ahead of Sunday's election.

Their main question is whether it will result in a government and parliament willing or able to reform the country's "debt brake", which limits Germany's structural deficit.

The blue-chip DAX, one of 2025's best-performing benchmarks so far, was flat around 2.5 percent below Wednesday's record peak. Domestic-focused German mid caps were up 0.8 percent on Friday, having hit a seven-month high early this week before falling sharply.

"With DAX up 13 percent year-to-date, it may see some downside if the status quo prevails and smaller parties secure a blocking minority," said analysts at Barclays.

In contrast, if a more pro-reform parliament is elected, they see potential for both mid and large caps to gain.

More spending would likely boost the euro, and weigh on government bonds.

Investors are also trying to process the implications of negotiations between the US and Russia over a possible ceasefire in Ukraine.

Shares in Europe had been rising on hopes of peace, but have recently stalled, and hostile rhetoric from US President Donald Trump toward Ukraine has left investors in its bonds in shock.

There was economic data out too. Business activity in Germany's private sector picked up slightly in February, but contracted by much more than expected in France.

British retail sales rose in January.

Overall, this left the euro lower against both the pound and the dollar at $1.1047 and 82.76 pence.

US share futures were flat.

There was plenty happening in Asia too, and MSCI's broadest index of Asia-Pacific shares outside Japan jumped more than 1 percent to its highest since November 8 on Friday, putting the index on track for a sixth straight week of gains - the longest such winning streak in over two years.

The move was led by a surge in Hong Kong SAR- and China-listed stocks, which saw the Hang Seng Index scale a three-year peak and push the CSI300 index 1 percent higher.

Alibaba, up 12.7 percent after it reported better-than-expected revenue, was the day's poster child, but Chinese stocks have been on a tear in recent days, driven by DeepSeek's AI breakthrough.

The Hang Seng Tech Index has gained nearly 30 percent for the year thus far, the S&P 500 is up just 4 percent over the same period.

"DeepSeek has been a catalyst for sentiment changing," said Brian Arcese, portfolio manager at Foord Asset Management.

The other mover in Asia was the Japanese yen, which took a breather after its recent rapid appreciation.

The dollar was last up 0.5 percent on the yen at 150.4 after yen comments from Bank of Japan Governor Kazuo Ueda eased concerns that the central bank may be considering a more aggressive rate hike stance.

Those comments trumped data also Friday showing Japan's core consumer inflation hit 3.2 percent in January, its fastest pace in 19 months.

In commodities, oil prices dipped but were headed for a weekly gain.

Brent crude oil futures eased 0.41 percent to $76.14 a barrel, but were set to rise more than 2 percent for the week.

Gold hovered near a record high and was set to extend its gains for an eighth consecutive week.