LONDON, TOKYO  - Global equities were set for a small weekly gain on Friday following a Wall Street rally overnight, as rising bets the Federal Reserve will skip a rate increase next week overshadowed worries about U.S. markets being drained of cash.

MSCI's broad index of global shares edged 0.2% higher, on track for a weekly rise of 0.6%.

Europe's Stoxx 600 equity gauge was flat, following a 2% jump in Japan's Nikkei, which rebounded strongly after its plunge from a 33-year high in the previous session.

Traders now lay 73% odds on the Fed keeping rates steady on June 14, in a range of 5%-5.25%, pausing its most aggressive hiking cycle since the 1980s.

Bets for a pause were supported by data overnight showing the number of Americans filing new jobless claims surged to a more than 1 1/2-year high, indicating a loosening labour market that could further quell inflation.

Investors also hope the Fed will pause its rate rise campaign as a quirk of the U.S. debt ceiling negotiations has posed a potential a threat to market liquidity.

The U.S. government is expected to rush to sell short term debt to replenish its Treasury General Account, potentially at yields so high that banks raise deposit rates to compete for funding, reducing interest in riskier assets like equities.

"We're all worried about liquidity," said Ben Jones, director of macro research at Invesco. The Fed, he added, "still wants to tighten," policy and therefore may allow the TGA rebuild to drain liquidity from markets without stepping in to provide other support tools.

This fear was not dominating trading on Friday, however.

On Wall Street overnight, gains were led by the tech-heavy Nasdaq, which surged 1.27%.

The broader S&P 500 rose 0.62%. Its gains put the benchmark index up 20% from its Oct. 12 closing low and heralded the start of a new bull market, at least by the definition of some market participants.

On Friday, e-mini U.S. equity futures pointed to a steady start for each of the indices.

Fed Chair Jerome) said on May 19 it was still unclear if U.S. interest rates will need to rise further, and the risks of overtightening or undertightening had become more balanced.

YIELDS UP

Two-year Treasury yields, which are extremely sensitive to monetary policy expectations, rose about 3.5 basis points (bps) to around 4.55%. The 10-year yield edged up to 3.749% after tumbling 7 bps overnight.

The U.S. dollar index, which measures the currency against a basket of six major peers, rebounded 0.2% to 103.52.

The euro was slipped 0.15% to $1.0765, just below Thursday's two-week high of $1.0787.

Elsewhere, the Turkish lira extended its decline to a new record low of 23.5 per dollar, even as President Tayyip Erdogan's appointment of a U.S. banker as central bank chief sent a strong signal for a return to more orthodox policy.

Erdogan had last week put well-regarded former finance minister Mehmet Simsek back in the post. Simsek said this week that the guiding principles for the economy would be transparency, consistency, accountability and predictability.

Leading crypto asset bitcoin briefly dipped before recovering to trade 0.5% firmer at $26,637 after crypto exchange Binance said

it was suspending dollar deposits and would soon pause fiat currency withdrawal channels following a U.S. Securities and Exchange Commission crackdown.

Crude oil remained on the back foot after a report that the United States and Iran were close to a nuclear deal, although denials from both parties kept it off the previous session's lows.

The prospect of a deal, which reportedly includes scope for an additional 1 million barrels per day of Iranian production, had knocked down West Texas Intermediate (WTI) crude by $3.50 to just shy of $69 at one point on Thursday.

WTI futures fell 0.3% to $71.09. Brent crude futures were off by the same amount at $75.75.

(Reporting by Naomi Rovnick and Kevin Buckland; Editing by Stephen Coates, Gerry Doyle and Andrew Heavens)