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GLOBAL MARKETS-World stocks steady after flip-flopping week

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

* Bitcoin at $40,000 after 14% plunge in wild week

* Oil on course for 5% weekly drop on Iran nuclear talks

LONDON, May 21 (Reuters) - World stocks steadied on Friday after a volatile week, taking their lead from a stronger Wall Street as U.S. data tempered inflation fears, while the dollar approached three-month lows on reduced bets of early Federal Reserve rate hikes.

Inflation worries have spooked markets after recent data, and Fed minutes on Wednesday suggested a possible change in policy towards tapering bond purchases.

But on Thursday the Philadelphia Federal Reserve Bank said its business activity index fell to 31.5 in May from 50.2 in April, casting doubt on how fast the U.S. economy can continue to heat up.

Other data on Thursday showed U.S. jobless rolls swelled in early May, which could dampen expectations for an acceleration in employment growth this month, even though the number of Americans filing new claims for unemployment benefits dropped further below 500,000 last week.

“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.”

The MSCI world equity index edged up 0.1% and was on course for a 0.4% 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.

Futures pointed to a further 0.25% rise for the S&P 500 at the open, following a more than 1% rise on Thursday.

European stocks rose 0.22%, though UK stocks dipped 0.16%.

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

British retail sales surged 9.2% year on year in April - twice the average forecast in a Reuters poll of economists - as shoppers splashed out on new clothes after shops reopened following months of lockdown closures.

The dollar index, which measures the greenback against six major peers, was steady at 90.195, 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 euro dipped 0.11% to $1.2212.

Bitcoin, meanwhile, dropped 2% to $39,755 to bring losses for the week to 14% after Chinese financial industry bodies banned the use of cryptocurrencies in payment and settlement and the market expressed unease about the extent of leveraged positions among investors.

The yield on benchmark 10-year Treasury notes held Thursday’s more than 4 basis point decline to hover around 1.62%. Germany’s 10-year yield, the benchmark for the region, was down 2 basis points at -0.127%.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.14%, putting it on track for a 1.8% weekly gain.

Oil prices were flat to lower as investors braced for 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 0.3% at $64.91 a barrel. West Texas Intermediate crude was steady at $61.90 a barrel.

Both contracts are down nearly 5% this week and on track to post their biggest weekly loss since March.

Additional reporting by Kevin Buckland; Editing by Sam Holmes and Catherine Evans

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