GLOBAL MARKETS-U.S. stock futures point higher after whipsaw week

* S&P futures up 0.26%, European stocks up 0.42%

* Weaker U.S. economic data scuppers bets for early taper

* Bitcoin above $40,000 but down 13% in wild week

* Oil on course for 4% weekly drop on Iran nuclear talks

LONDON, May 21 (Reuters) - U.S. stock futures were indicating a higher Wall Street on Friday after a volatile week, with recent U.S. data soothing inflation nerves, while the dollar approached three-month lows on reduced bets of early Federal Reserve rate hikes.

U.S. inflation worries have spooked markets, and Fed minutes on Wednesday suggested some policymakers were ready to talk about reducing stimulus by tapering bond purchases.

But that inflation concern eased on Thursday after the Philadelphia Federal Reserve Bank said its business activity index fell to 31.5 in May from 50.2 in April, casting doubt on the pace of economic recovery.

“It’s all about inflation and raising interest rates,” said Giles Coghlan, chief currency analyst at HYCM.

“Fear in the market is being played out by these spikes - it’s like someone on edge.”

Data on Thursday also showed U.S. jobless rolls swelled in early May, which could dampen expectations for an acceleration in employment growth this month, with jobs a key focus for the U.S. central bank.

Markets await U.S. flash purchasing managers’ data for May on Friday.

Futures pointed to a further 0.26% rise for the S&P 500 at the open, following a more than 1% rise on Thursday.

The MSCI world equity index rose 0.2% and was on course for a 0.5% rise on the week, following a 1.8% bounce in the Nasdaq Composite and 0.6% gain in the Dow Jones Industrial Average on Thursday.

MSCI’s broadest index of Asia-Pacific shares outside Japan hit a 10-day high and was up 0.36%, putting it on track for a 2% weekly gain.

European stocks rose 0.42%, though UK stocks were flat.

In the euro zone, the IHS Markit’s flash Composite Purchasing Managers’ Index, seen as a good guide to economic health, climbed to 56.9 in May, its highest level since Feb 2018, from April’s final reading of 53.8.

British retail sales surged 9.2% on the month in April, twice the average forecast in a Reuters poll of economists, and the UK Composite Purchasing Managers’ Index hit a record high at 62.0.

But equity markets are becoming skittish after months of gains, with investors conscious of the traditional advice to “sell in May”.

“The market has run on a lot since November when vaccines were first announced, with some indexes up 100% or so in the past year,” said Edward Perkin, Chief Equity Investment Officer at Eaton Vance. “It feels like the right time for the market to take a pause.” Official tolls showing the number of deaths directly or indirectly attributed to the COVID-19 pandemic are likely to be a “significant undercount”, the World Health Organization said on Friday, saying 6-8 million people may have died so far. The dollar index, which measures the greenback against six major peers, was steady at 89.749, near recent three-month lows following its steepest slide in about two weeks on Thursday as bets of early U.S. rate hikes pared back.

The pound rose 0.2% to a three-month high, while the euro was steady.

Bitcoin clambered back above $40,000 but was down 13% on the week after Chinese financial industry bodies banned the use of cryptocurrencies in payment and settlement.

The U.S. Treasury Department on Thursday called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service and the Fed flagged the risks cryptocurrencies posed to financial stability.

The yield on benchmark 10-year Treasury notes held Thursday’s more than 4 basis point decline on the U.S. data to 1.62%. Germany’s 10-year yield, the benchmark for the euro zone, was steady at -0.116%.

Oil prices rose after three days of losses but were on track for a weekly fall of 4%, their biggest loss since March, on expectations of the return of Iranian crude supplies after officials said Iran and world powers had made progress on talks to revive a 2015 nuclear deal.

Brent crude was down 1.15% at $65.86 a barrel. West Texas Intermediate crude was up 1.4% at $62.80 a barrel.

Gold was steady at $1,878 an ounce, up 1.9% on the week.

Additional reporting by Sujata Rao in London and Kevin Buckland in Tokyo; Editing by Sam Holmes, Catherine Evans and Andrew Heavens