Updates at 0500 GMT

By Rae Wee

SINGAPORE, Oct 4 (Reuters) -Asian stocks rose on Friday while oil prices were headed for their sharpest weekly gain in more than a year, as escalating tensions in the Middle East kept markets on edge.

Investor focus was also on the key U.S. nonfarm payrolls report due later in the day, which would provide further clues on the Federal Reserve's rate outlook.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.16% and was set to end the week with a 0.5% increase.

It was helped by a 2.2% jump in Hong Kong's Hang Seng Index .HIS on continuing optimism over China's massive stimulus measures. The Hang Seng Index is heading for a weekly gain of more than 9%.

S&P 500 futures ESc1 rose 0.04% while Nasdaq futures NQc1 tacked on 0.1%. EUROSTOXX 50 futures STXEc1 also added 0.1%.

Oil prices are on track for strong weekly gains, driven by concerns over potential supply disruptions in the Middle East.

U.S. President Joe Biden said on Thursday that the U.S. was discussing strikes on Iran's oil facilities, when asked whether he would support Israel's strikes in retaliation for Tehran's missile attack on Israel.

Biden's comments sparked a surge in oil prices, which had already been on the rise this week.

Brent crude futures LCOc1 eased 0.14% to $77.51 a barrel on Friday but were headed for a weekly gain of about 7.7%, the largest since February 2023.

U.S. West Texas Intermediate (WTI) crude futures CLc1 eased 0.12% to $73.62 per barrel and were on track to advance 8.1% for the week, the most since March 2023.

"I think we're probably not far away from getting an Israeli response," said Tony Sycamore, a market analyst at IG.

"If we woke up on Saturday or Sunday morning to find out that there had been a response, that wouldn't surprise me at all. So very much cautious trading ahead of that. We know it's coming, it's just creating uncertainty because we don't know what the timing is, and of course we don't know what they've decided in terms of the targets."

Elsewhere, caution capped gains in regional share markets.

In Japan, the Nikkei .N225 rose 0.27%, but was set for a weekly loss of about 3%.

Japanese stocks have had a choppy few sessions this week as investors weighed rising geopolitical tensions against the domestic rate outlook.

Prime Minister Shigeru Ishiba said this week that economic conditions in the country were not ripe for more rate hikes by the Bank of Japan (BOJ), reversing the hawkish tone he struck prior to his election victory.

The comments, coupled with more dovishness from other officials, sent the yen weakening past the 147 per dollar level, though it traded 0.46% higher on Friday and last stood at 146.27 per dollar.

Still, the Japanese currency was headed for a weekly fall of 2.8%.

In some good news, U.S. East Coast and Gulf Coast ports began reopening on Thursday night after dockworkers and port operators reached a wage deal to settle the industry's biggest work stoppage in nearly half a century.

ECONOMIC RESILIENCE

The dollar hovered near a six-week high ahead of the payrolls report that could decide the path of interest rates.

Expectations are for the U.S. economy to have added 140,000 jobs last month, slightly down from August's 142,000 increase.

Against a basket of currencies, the dollar =USD was last at 101.88.

A slew of data releases this week pointed to a U.S. economy still in solid shape, after the country's services sector activity jumped to a 1-1/2-year high in September amid strong growth in new orders, while a separate report from the Labor Department on Thursday showed the labour market gliding at the end of the third quarter.

That sent traders paring back bets of another 50-basis-point rate cut by the Fed next month, with futures pointing to just a 35% chance of such a scenario. FEDWATCH

"The U.S. services ISM beat strongly on the upside, exceeding all forecasts. It certainly points to a robust U.S. economy," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. "Our base case assumption remains that the U.S. labour market is normalising rather than faltering."

The euro EUR=EBS was little changed at $1.1029, though it was set for a weekly drop of 1.2%. Sterling GBP=D3 edged 0.02% higher to $1.3129, nursing its losses after sliding more than 1% on Thursday.

The British pound had been weighed down by dovish comments from Bank of England Governor Andrew Bailey, who said the central bank could become "a bit more activist" on rate cuts if there is further good news on inflation.

Elsewhere, spot gold XAU= rose 0.34% to $2,665.15 an ounce. GOL/

Editing by Jacqueline Wong

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