World Shares Hit Highest Level Since June 2008

* European shares rise further, MSCI world index hits 4-3/4
yr high
* U.S. jobs data eyed, China exports beat forecasts
* Dollar touches 3-1/2-year peak against yen

LONDON, March 8 (Reuters) - World shares hit their highest level since June 2008 and the dollar set a fresh 3-1/2-year high against the yen on Friday, ahead of U.S. jobs data expected to point to a continuing pick up in the world's biggest economy.

With U.S. payrolls figures due at 1330 GMT expected to show firms added 160,000 jobs last month versus 157,000 in January, Wall Street was expected to open higher again following this week's record highs for the Dow Jones Industrial Average.

China also gave markets a boost as official data showed February exports grew 21.8 percent versus a year ago, more than double the expected rise.

European shares, which have rebounded strongly after last week's Italian election and U.S. spending cuts related wobble, were up 0.5 percent ahead of the jobs data and on track for their best week since the start of the year.

Japan's Nikkei had hit a 4-1/2 year high in Asian trading and 0.3, 0.9 and 0.6 rises by London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX helped MSCI's world share index to its highest level since late June 2008.

"There appears to be a strong risk-on mood in the market at the moment," said Ken Wattret, co head of European market economics at BNP Paribas.

"The negativity from the Italian elections was shrugged off pretty quickly, the Fed has made it clear that its policy will remain accommodative. If we get a get a good set of payrolls numbers, that will further fuel that sentiment."

MSCI's world index tracks 9,000 stocks in 45 countries. Its rise illustrates how investors have returned to stocks and other "risk" assets over the last eight months as slowly improving world growth and the European Central Bank's pledge to prevent a break-up of the euro, have combined to bolster sentiment.

Friday's U.S. payrolls report is key to gauging the Federal Reserve's policy course going forward. The bank has promised that as long as inflation doesn't pose a threat, it will keep interest rates near-zero until unemployment falls to 6.5 percent.

DOLLAR STRENGTH

In the currency market, the sudden spike in tensions on the Korean peninsula added to the more dominant U.S. growth-led demand for the dollar.

Having said earlier in the week it was scrapping its armistice with South Korea, North Korea threatened the United States on Thursday with a preemptive nuclear strike after accusing it of warmongering.

The dollar was up 0.2 percent against a basket of major currencies ahead of the jobs data but most of the focus was on its continued rise against the yen after it hit a 3-1/2 year high of 95.75 yen.

If the Bank of Japan's new leaders expands its stimulus programme next month as expected, the dollar could trade in the 95-98 yen area or even open the way for a test of 100 yen, said Ronald Ip, Director of Wealth Solutions Group for HSBC Global Markets.

The euro, meanwhile, shrugged off some early weakness to climb back above $1.31 and hold on to the bulk of previous day's gains after the ECB wrong-footed investors who had been expecting more of a signal on rate cuts from Mario Draghi.

Fresh euro zone data continued to support the calls for a cut that some of the ECB's members had pushed for on Thursday.

Although it was slightly better than had been expected, Spain's industrial output fell 5 percent year-on-year in January, the seventeenth month of declines.

France's central bank also maintained its view that its economy will only just dodge recession this quarter, while even Germany saw its muscular industrial sector stall in January.

GRADUAL GAINS

With demand for low-risk assets cool ahead of the U.S. data, German Bund futures edged lower to 142.70 having fallen the previous day after the ECB's less dovish than expected tone.

Italian bonds continued to slowly claw back ground they lost after last week's inconclusive election result re-ignited concerns about its fiscal rehabilitation programme.

The stronger dollar and the bright Chinese data were also the focus of commodity markets. Most of the world's raw materials are bought and sold in dollars so its movements can have a strong influence on prices.

Oil prices steadied above $111 a barrel, leaving them almost bang in line with where they started the year after an up and down few weeks. Copper and gold were both little changed but on course for their first weekly gains since mid-February.

After a week which has seen five the world's top 10 central banks decide to leave policy unchanged in the face of a very modest global growth outlook, expectations for gradual gains in riskier assets are unchanged.

"We continue to look for ways to gradually build risk rather than reduce, and what we're seeing from the central banks leaves us unchanged in that view," Johan Jooste, chief market strategist at Merrill Lynch Wealth Management said.

"It's not like we're sittings on our hands. What we're doing is, at the margin, adding risk rather than piling straight into it at these levels."