LONDON/SYDNEY - Global stocks traded cautiously on Friday as the dollar hit multi-week highs and markets awaited U.S. business surveys for clues about whether the world's largest economy remains strong enough to withstand high interest rates.

MSCI's broad index of global stocks was flat on the day, although still on track for a 0.8% weekly rise, taking its monthly gain to more than 2%.

Europe's Stoxx share index also opened flat, while futures trading implied Wall Street's S&P 500 would also drift sideways in early New York dealings.

The mood was indecisive ahead of the release later in the day of S&P Global's U.S. purchasing manager indices, viewed as real-time snapshots of business confidence and economic activity.

Economists polled by Reuters expect this month's indices to produce readings above the level of 50 that show activity is expanding, but to have fallen slightly since last month.

A robust U.S. economy has propelled Wall Street stocks to record levels and dissuaded the Federal Reserve from cutting interest rates from their 23-year high of 5.25% to 5.5%.

Markets are currently clinging to a narrative that the economy and inflation will decelerate by just enough for the Fed to ease financial conditions gradually.

But that ignores risks such as the lagged effects of tight monetary policy causing a hard slowdown, or further economic growth keeping rates high for longer, Russell Investments global head of investment strategy Andrew Pease said.

"I'd be concerned about higher (market) volatility in coming months as the market oscillates between seeing the soft landing and worrying that maybe it's not going to happen," he said.

Meanwhile relentless strength in the U.S. dollar on Friday pushed the Japanese yen towards the intervention zone.

The yen dropped to 158.77 per dollar, close to its levels in late April when Japanese authorities intervened to try and stem the currency's rapid decline.

Data showed earlier on Friday that Japan's demand-led inflation slowed in May.

That complicated the outlook for how quickly the Bank of Japan might move towards interest rate hikes after it ended negative rates in March in a landmark signal the nation might have ended a long era of deflation and demographic decline.

BoJ deputy governor Shinichi Uchida said on Friday that the central bank was willing to raise rates if the economy and prices move in line with its forecasts, but signs of weakness remained.

The dollar was also benefiting from a growing divergence between Fed policy and that of central banks in Europe. On Thursday the Swiss National Bank cut rates for a second time, while the Bank of England opened the door to easing in August or September after holding rates steady.

Sterling, the Swiss franc and the euro also weakened against the dollar on Friday.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6% on Friday, dragged lower by a pull-back in technology shares in a repeat of patterns on Wall Street in the previous session.

In debt markets, U.S. Treasuries were set to end the week on the back foot as Fed rate cut doubts lowered the appeal of the fixed interest-paying securities.

Two-year Treasury yields were headed for a weekly rise of 3 basis points to 4.7151%, while the 10-year yield is 2 bps higher this week, trading at 4.2341%. Bond yields rise as prices fall.

Germany's ten-year bund yield was also 3 bps higher on the week at 2.382%.

UK government bonds have outperformed, with the 10-year gilt yield 4 bps lower at 4.016%, reflecting hopes of BoE rate cuts and as predictions of the opposition Labour Party winning next month's UK election drew investors back to British markets.

Brent crude futures edged 0.3% lower to $85.51 a barrel after hitting seven-week highs earlier in the week.

Gold was 0.2% lower at $2,363.91 per ounce.

(Reporting by Naomi Rovnick and Stella Qiu; Editing by Jan Harvey)