* Asian, European shares bounce; sentiment cautious
* VIX volatility gauge retreats from 8-month high
* China trade surplus with U.S. hits all-time peak
By Ritvik Carvalho
LONDON, Oct 12 (Reuters) - Shares worldwide were set for their biggest daily gains in nearly a month on Friday as European and Asian markets recovered from a days-long sell-off that left them set for their worst week since February.
After Asian shares rose overnight, European stocks opened higher, with the pan-European STOXX 600 up 0.7 percent.
Germany's DAX was up half a percent while Britain's FTSE 100 gained 0.7 percent.
S&P stock futures pointed to a rebound in U.S. stocks later in the day , while the VIX volatility index climbed down from an eight-month high.
The MSCI All-Country World index, which tracks shares in 47 countries, was up half a percent on the day.
"Some traders are cautiously buying back into the market today, but the underlying issues which brought about the sell-off are still relevant," CMC Markets analyst David Madden said.
The biggest market shakeout since February has been blamed on a series of factors, including worries about the impact of a U.S.-China trade war, a spike in U.S. bond yields this week and caution ahead of earnings season.
Trade figures from China on Friday showed China's trade surplus with the United States hit a record high in September, providing a likely source of contention with U.S. President Donald Trump over trade policies and the currency.
The data showed solid expansion in China's overall imports and exports, suggesting little damage from the tit-for-tat tariffs with the United States.
That added to bullish sentiment on Friday, CMC's Madden said, noting the decision by U.S. Treasury staff to refrain from labelling China a currency manipulator as a positive for stocks.
Shanghai shares bounced 0.9 percent, recouping earyly-session losses of 1.8 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.06 percent, the biggest one-day gain for more than two years.
The bounce came after the index fell 3.6 percent on Thursday to hit a 1-1/2-year low, and it is still on track for a weekly loss of 3.6 percent.
Japan's Nikkei average rose half a percent.
So far this week, Chinese and U.S. shares are among the biggest losers, a sign investor worries about the trade war are growing.
MSCI's U.S. index has shed 5.5 percent, compared with a 4.9 percent fall for MSCI's gauge of stock performance in 47 countries. China A shares are still down 8.7 percent.
"We're still left with the sense that there has been a significant shift that markets now have to take stock of," Daiwa Capital Markets head of economic research Chris Scicluna said.
Gold, which had risen to a 10-week high on the back of the sell-off, fell half a percent on Friday to $1.217.31 an ounce.
The yield on 10-year U.S. notes edged up in Europe to 3.170 percent, reversing early-session falls on flight-to-quality bids.
It is off its seven-year Tuesday high of 3.261 percent but a further rise in U.S. borrowing costs might hurt risk sentiment.
Online broker XM investment broker Marios Hadjikyriacos said the pullback in yields was a major comfort factor for investors.
"This can be seen as a self-correcting mechanism, where stocks begin to sell off as bond yields rise, leading investors to shift back to bonds amid the risk-averse environment, hence driving yields back down and calming the stock market," he said.
Adding to the confusion for investors, Trump launched a second day of criticism of the Federal Reserve on Thursday, calling its interest rate increases a "ridiculous" policy.
While that does not appear to have shaken investor confidence in the Fed's independence, some investors suspect expectations on future rate hikes could be undermined if Trump's language becomes more threatening.
The dollar against a basket of major currencies rose 0.1 percent to 95.093.
The euro was 0.1 percent lower at $1.1583, after a gain of 0.65 percent on Thursday.
But the yen eased to 112.24 versus the dollar after hitting a three-week high of 111.83 on Thursday.
The Chinese yuan weakened half a percent, giving up some of the gains it had made the previous day.
Oil prices bounced back on Friday.
Brent crude futures rose 0.4 percent to $80.60 a barrel, holding off a 4-year high of $86.74 touched on Oct. 3.
Reporting by Ritvik Carvalho Additional reporting by Dhara Ranasinghe in London and Hideyuki Sano in Singapore Editing by Louise Ireland