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The yen weakened 0.5 percent to 108.18 while riskier currencies such as the Australian dollar gained 0.2 percent to $0.7020.

•"Sentiment has shifted slightly towards the positive side, which is why we are seeing the yen weaken while Aussie dollar is rising," said Margaret Yang, markets analyst at CMC Markets.

However, fears of a sharp slowdown in economic growth and a failure of the trade talks are likely to keep investors from diving back into riskier assets in a big way in the coming weeks.

Weaker-than-expected U.S. factory activity has heightened investor expectations the Federal Reserve will not raise rates in 2019, and possibly even cut them in 2020. Data has also been weak out of China and Europe.

The Fed raised rates four times in 2018 on the back of strong growth and a robust labour market. However, with financial conditions tightening, most analysts now do not expect the Fed to raise rates in 2019.

Indeed, interest rate futures markets are now fully pricing in a rate cut by April next year.

• The dollar index was relatively unchanged at 96.3. The index fell 0.56 percent in the previous session.

• The euro and sterling were unchanged from Thursday's close at $1.1393 and $1.2636, respectively.

• China and the United States will hold vice ministerial level trade talks in Beijing on Jan. 7-8, as the two sides look to end a dispute that is inflicting increasing pain on both economies and roiling global financial markets.

A working team led by Deputy U.S. Trade Representative Jeffrey Gerrish will come to China to have “positive and constructive discussions” with Chinese counterparts, China’s commerce ministry said in a statement on its website.

The ministry said the two sides “confirmed” the dates in a phone call on Friday morning, but did not provide other details.

• Japanese manufacturing activity expanded more in December than earlier forecast as output increased at the fastest pace in eight months, a revised survey showed on Friday, a sign the economy ended the year on strong footing.

The final Markit/Nikkei Japan Manufacturing Purchasing Managers’ Index (PMI) was a seasonally adjusted 52.6 in December, up from a flash reading of 52.4and higher than a November’s final 52.2.

• As a partial U.S. government shutdown hit the two-week mark, President Donald Trump and congressional leaders were scheduled on Friday to discuss ways to break an impasse pitting his demand for building a border wall against Democrats’ call for alternative security measures.

• The U.S. House of Representatives, where Democrats now hold a majority, approved legislation on Thursday to end a partial government shutdown that began nearly two weeks ago at several federal agencies and fund the Department of Homeland Security through Feb. 8.

Under the bills, the departments of State, Commerce, Agriculture, Labor, Treasury and other agencies would be funded through Sept. 30, the end of the current fiscal year.

Hours before the vote, the White House said advisers to President Donald Trump would recommend that he veto the measure if Congress passed it without any additional money for Trump’s proposed wall along the U.S.-Mexico border.

• U.S. job growth likely picked up in December with wages expected to have increased solidly, which could help to allay a recent upsurge in fears about the economy’s health that have roiled financial markets.

Nonfarm payrolls probably increased by 177,000 jobs last month, according to a Reuters survey of economists, after rising 155,000 in November. Slow job gains in November were largely blamed on unseasonably chilly temperatures, which stymied hiring at construction sites.

Average hourly earnings are seen rising 0.3 percent in December after gaining 0.2 percent in November. The annual increase in wages will, however, probably dip to 3.0 percent from 3.1 percent in November as the big increase in December 2017 drops out of the calculation

The unemployment rate is forecast steady at near a 49-year low of 3.7 percent for a fourth straight month. The December report will include annual revisions to household survey data from which the unemployment rate is calculated, going back five years.