* Euro shares extend gains, best week for world stocks in 8 months * Fed cheer gives way to caution ahead of Chinese data on Monday * Selloff in dollar eases, currencies steadier after wild ride By Marc Jones LONDON, July 12 (Reuters) - European shares squeezed out small early gains on Friday and the dollar steadied, as this week's soothing talk of careful support from the world's major central banks left world stocks heading for their best week in almost eight months. Sentiment in Europe was underpinned by Wall Street closing at record highs on Thursday. The broad FTSEurofirst 300 index opened up 0.2 as it eyed a fifth day of gains, while a steady end in Asia left MSCI's world stock index, which tracks markets in 45 countries, on track for its best week since November. This week's rally in financial markets has spread across stocks and bonds to oil and metals and been driven by hints from the U.S. Federal Reserve that it may not be as eager to phase out its support as markets had started to believe. "Markets have been reassured by the mention (by the Fed) of financial conditions and the weakness of inflation," Guy Foster, head of portfolio strategy at Brewin Dolphin, said. "There remains little reason for the Fed to tighten policy although given their comments to date we assume a modest reduction in purchases in September," he added. Currency markets were steadier following a breathtaking selloff in the dollar on Thursday as investors cut bullish positions on the reassessment of the Fed's view. The dollar index, which tracks the greenback's performance against a basket of major currencies, edged off 2-1/2 week lows, having slumped more than 2 percent. That was the steepest fall in four years, normally seen only during financial crises. After an early dip, the euro had set up camp at $1.3065 having jumped as far as $1.3208 on Thursday to be well off this week's trough of $1.2755. Gold eased after four days of gains but was on track for its biggest weekly gain in nearly two years as easing concerns about an early end to U.S. monetary stimulus boosted bullion's appeal as a hedge against inflation again. Copper was on course for its best week in two months as it dipped back below $7,000 a tonne, while Brent oil was steady at $108 a barrel having hit a three-month high on Thursday.