Asia stock market
A dealer scratches his face at a foreign exchange trading company in Tokyo July 28, 2011. Reuters

Asian stocks extended gains on Friday after Wall Street's S&P 500 set a new all-time high, while the dollar slipped as investors viewed Beijing's and Washington's fresh exchange of import tariffs as less harmful than initially feared.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent in early trade, extending the recovery from its 14-month low hit on Sept. 12 to 3.6 percent.

Japan's Nikkei rose 0.5 percent, hitting an eight-month high.

On Wall Street, trade-sensitive industrial stocks led the gains on Thursday. The Dow Jones Industrial Average rose 0.95 percent while the S&P 500 gained 0.78 percent, both hitting record highs.

The latest rally comes after new U.S. and Chinese tariffs on each other's goods were set at lower rates this week than previously expected, raising hopes that hostilities between the world's two largest economies may be easing.

Despite the trade risks, the outlook on corporate profit remained solid in many markets on the back of strong global growth, keeping equity valuations relatively attractive.

"Of course, the trade war will continue. We have to see how much damage the tariffs will cause to China's exports. But it will probably be the early next year that we will see that in hard data," said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

"And any progress in Sino-U.S. trade talks may have to wait until after the U.S. mid-term elections. This will be a long term issue," he said.

MSCI's ACWI, an index covering the world's 47 markets, edged up 0.1 percent to near its 5 1/2-month high hit at the end of August, having gained 1.4 percent so far this week.

Leading the gains were developed markets outside the U.S., which have risen 2.3 percent so far this week.

They outperformed U.S shares, which have risen 0.8 percent, reversing their underperformance since early May when trade disputes intensified.

In the currency market, the euro gained almost 1 percent on Thursday to hit a 2 1/2-month high of $1.1785 and last traded at $1.1779.

The yen hit a two-month low of 112.585 to the dollar on Thursday and last stood at 112.51.

The British pound climbed to as high as $1.3295, its highest since early July, after strong UK retail sales data.

The closely watched summit of the European Union produced little progress on the thorny issue of trade and the Irish border. EU leaders have warned British Prime Minister Theresa May that they are ready to cope with Britain crashing out of the bloc if she does not compromise.

At home, Britain's former Brexit minister David Davis has said up to 40 lawmakers from the ruling party will vote against May's plans to leave the European Union, meaning she may struggle to get her deal through parliament.

The pound last stood at $1.3272.

Oil prices have pulled back after U.S. President Donald Trump urged OPEC to increase production at its meeting in Algeria.

U.S. light crude was down 0.1 percent at $70.23 a barrel. Brent crude oil were little changed at $78.77 a barrel.