(Updates throughout.) * Pan-European stock index up 0.2% * Sterling at $1.40 for first time in nearly three years * German, British 10-yr bond yields up to multi-month highs * Gold hits a seven-month low, oil prices slip LONDON, Feb 19 (Reuters) - Global shares edged up on Friday, reversing three days of losses, as investors clung to hopes of economic recovery ahead, while German and British 10-year bond yields touched multi-month highs, spurred by bets of reflation in the United States. The pan European index was up 0.2% but still set for its first weekly loss in February, as investors took solace in factory activity in February jumping to its highest in three years even as the data also showed continued pain for the bloc’s dominant service industry from measures to contain the coronavirus. London’s FTSE index was 0.1% firmer. Data showed British retail sales tumbled in January. Hermes shares jumped 5.7% as the Birkin bag maker said sales recovered sharply in the fourth quarter. The MSCI world equity benchmark was 0.2% stronger. MSCI’s broadest index of Asia Pacific shares outside of Japan was flat. E-mini futures for the S&P 500 were 0.3% firmer. Global shares have been fuelled in recent months largely by easy monetary and fiscal policies around the world and initial rollouts of COVID-19 vaccines. “It’s kind of odd to think that only a year ago investors were worried about depression and deflation and now they are worried about overheating and inflation,” said Shane Oliver, an economist for AMP. “The big-picture backdrop of still-low underlying inflation and spare capacity in jobs markets, combined with economic and profit recovery and low interest rates, is a positive one for growth assets, particularly shares,” he said. Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programmes and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades. Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields. German benchmark 10-year bond yields were set for their worst week since June. They were up on Friday to -0.32%, hitting their highest since June. British 10-year yields traded close to a 11-month top of 0.66% and U.S. Treasury yields were not far from one-year highs around 1.3%. Rising bond yields hurt the appeal of gold, with spot prices dropping to a seven-month low to trade at $1,772.80 per ounce. “The reflation-narrative-driven selloff in bond yields really has now developed a life of its own,” said James Athey, investment director at Aberdeen Standard Investments. “It is starting to move real yields higher, which is increasingly suggestive of a market which is testing central bank resolve.” Disappointing U.S. jobless figures didn’t help investor sentiment. An unexpected increase in the number of Americans seeking jobless benefits weighed on the outlook. The Labor Department on Thursday reported initial unemployment claims rose by 13,000 to 861,000, injecting scepticism about how quickly the U.S. economy could rebound from the global pandemic. Further, U.S. housing starts fell 6.0% in January, the first decline in five months. In currencies, the poor U.S. data helped the dollar slip further and the euro rebound. The dollar slipped 0.3% against a basket of currencies, putting the dollar index at 90.309. The British pound has been the standout performer in 2021, and on Friday it rose to $1.4009, a near three-year high amid Britain’s aggressive vaccination programme. Helped by a recent rally in commodity prices, the Aussie dollar rose 0.8% to $0.784, its highest since March 2018. Bitcoin, which some see as a hedge against inflation, hit a record high of $52,932, gaining more than 2.6% on the day. In commodities, oil markets saw some profit-taking following days of gains driven by a deep freeze across Texas that weighed on production. Brent crude fell 1.6% to at $62.94 a barrel. U.S. crude futures slipped 2.1% to $59.27 a barrel.