* U.S. futures, European stocks drop 0.5-0.8% * Dollar index eyes weekly gain * GameStop price nearly doubles in U.S. pre-market * Bitcoin jumps 14% after Elon Musk mention LONDON, Jan 29 (Reuters) - U.S. stock futures and European stocks fell on Friday while the safe-haven dollar held its ground as a Wall Street battle between hedge funds and retail investors and a row in Europe over COVID-19 vaccine supply cooled risk appetite. Wall Street has been gripped by an assault by small traders organising over online forums, such as Reddit, to force hedge funds to reverse short positions - or bets that stocks would fall - on companies such as GameStop and AMC Entertainment. The stand-off comes after central bank and government stimulus have propelled stock markets to record highs in recent weeks, encouraging involvement by retail investors. “There’s fear in terms of the volatility,” said Derek Halpenny, head of research for global markets at MUFG. “Specific trades in pockets of the market can spread into the broader market.” Shares in GameStop, AMC Entertainment and BlackBerry plunged more than 40% on Thursday after several online platforms imposed buying halts, but rebounded as Robinhood and Interactive Brokers eased the restrictions on Friday. GameStop shares nearly doubled and AMC Entertainment was up 55% in U.S. pre-market trade. “Any hedge fund will be carefully looking at all their shorts after this week and regulators will look very carefully at collective retail trading,” Deutsche Bank analysts said. S&P 500 futures recouped some ground in European trade but were down 0.5% by 1138 GMT. Nasdaq 100 futures fell 0.7% . Britain’s FTSE 100 index fell 0.8% and European stocks dropped 0.7%. Delays in COVID-19 vaccine production have snowballed into a spat between Britain, the European Union and drugmakers over how best to direct limited supplies. AstraZeneca offered eight million more doses of its COVID-19 vaccine to the European Union, after it unexpectedly announced cuts in supplies last week. But the bloc said that was far short of what was originally promised, an EU official told Reuters on Friday. New variants of the novel coronavirus have also prolonged lockdowns and delayed expectations of an economic rebound. Barclays analysts, however, said that “institutional positioning is not aggressive overall, and as long as vaccines work and central banks stay put, buy-the-dip mentality should continue”. Click here tmsnrt.rs/2EmTD6j for an interactive chart on the vaccine race The U.S. dollar rose to its highest since mid-November against the yen, and was steady against an index of currencies, bringing its weekly rise to 0.4%. The euro edged up 0.1% and the pound was steady. Bitcoin jumped as much as 14% to a two-week high after Tesla Inc TSLA.O chief Elon Musk tagged the cryptocurrency in his Twitter biography. French 10-year government bond yields, which move inversely to price, rose four basis points after France’s gross domestic product contracted less than expected in the fourth quarter of 2020. World stocks fell 0.4% towards three-week lows set in the previous session, and were heading for a weekly fall of more than 2%. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%, on course for a weekly loss of 4.4%. Japan’s Nikkei fell 1.9%, recording its first weekly loss of the year. The People’s Bank of China (PBOC) injected 100 billion yuan into the financial system on Friday, following a week of reducing liquidity, which had sparked concerns the central bank was in fact tightening monetary policy. The extra money did little to loosen short-term money markets, where rates rose for a fifth straight day and benchmark overnight repo rates surged to their highest in nearly six years. Oil prices rose within recent ranges, with concerns caused by the new coronavirus variants and slow vaccine rollouts offsetting a cut in Saudi Arabian oil supply and falling U.S. oil inventories. Brent crude futures were up 0.88% at $56.02 a barrel and U.S. crude futures rose 0.5% to $52.60 a barrel. Gold benefited from demand for safer assets, rising 1.1%.