Reuters - European stocks rose early on Friday as renewed appetite for risk fuelled a year-end equity rally and weighed on Japan's low-yielding yen, which hit 105 to the dollar for the first time in five years.

U.S. benchmark Treasuries yields edged above 3 percent for the first time since September, having risen steadily since the Federal Reserve said last week it would shrink its monthly bond purchases in January.

Bund futures fell by around half a point, with data on Thursday that showed a fall in U.S. jobless claims and a rise in holiday retail sales pressuring both countries' debt.

"In the U.S., I think yields could continue to grind higher, especially if data continues to improve," said Anders Svendsen, chief analyst at Nordea.

Turkey was again in the emerging market spotlight, with the lira hitting a new low against the dollar on rising political tensions linked to a high-level corruption case that has shaken Prime Minister Tayyip Erdogan's government.

Most equity markets continued to gain ground, with the FTSEurofirst 300 index of top European shares up 0.7 percent in morning trade, led by the DAX, which rose 0.8 percent. The German blue-chip index hit a record high and was on track to post an annual gain of around 25 percent, outpacing an expected rise of around 15 percent for the FTSEurofirst 300.

Japan's Nikkei stock average hit its highest close in six years, up 55.6 percent so far in 2013, its best annual performance since 1972, driven by the country's aggressive fiscal and monetary stimulus.

The effort seems to be working, with figures out on Friday showing Japanese manufacturing activity expanding at the fastest clip in more than seven years while firms added workers at the quickest pace in over six years.

"Japanese households have a lot of cash in their assets and as inflation will speed up next year, we will see a shift from their assets in cash deposit into riskier assets. Next year we will see more active trading by individual investors," said Jun Yunoki, an equity analyst at Nomura Securities.

The dollar was up at 104.80 yen on Friday having risen as high as 105.05, while the euro also hit a five-year high of 144.10 yen. The single currency was firmer against the dollar at $1.3737, though off last week's high of $1.3811.

Though the euro zone's economic recovery is seen as sluggish, the currency has been underpinned by European banks' repatriation of assets as well as buying by the region's exporters as its current account surplus has increased sharply.

COPPER RALLY

London copper jumped to its highest in four months, with signs of economic revival in Asia and the United States burnishing the demand outlook for metals.

"You have China saying they are going to grow at 7.6 percent next year, plus a European recovery and the U.S. is doing fine, so the market sees that momentum is building in the global economy and that is the big support for metals right now," said Dominic Schnider at UBS Wealth Management in Singapore.

Gold rebounded from intraday lows on physical buying but it was on track for its biggest annual loss in more than 30 years, down more than 27 percent in 2013 as the long-expected tapering of the Fed's bond-buying stimulus took the shine off an asset seen as a hedge against inflation.

Brent crude slipped towards $111 a barrel after settling at the highest in more than three weeks, although supply disruptions in Africa and firmer oil product prices in the United States capped losses.