* Stocks stay on track for best week in eight
* Fed rate decision next week hangs in the balance
* Goldman cuts oil forecasts
By Jamie McGeever
LONDON, Sept 11 (Reuters) - Stocks and bond yields fell on Friday, but global equities remained on track for their biggest weekly gain in eight as investors grappled with the possibility of U.S. interest rates rising next week.
While next Thursday's eagerly anticipated decision from the Federal Reserve hangs very much in the balance, meaning the potential for market volatility remains high, stocks and bond yields have moved higher this week.
Reflecting the lack of uniform market thinking as the big day approaches, however, the dollar rose on Friday, although was on track for its first weekly decline in three.
"With a week to go until the Fed makes its decision, markets are likely to remain on edge with volatile moves possible in either direction," said Jasper Lawler, market analyst at CMC Markets.
Around midsession in Europe on Friday, shares were lower. The FTSEuroFirst index of leading 300 shares was down 0.7 percent at 1,405 points .FTEU3 , but still up around 1 percent on the week, its best performance since mid-July.
Britain's FTSE 100 .FTSE was down 0.4 percent at 6,132 points, Germany's DAX .GDAXI was down 0.8 percent at 10,135 points and France's CAC 40 .FCHI was off 0.7 percent at 4,565 points.
U.S. stock futures ESc1 slipped 0.3 percent, suggesting a weaker opening on Wall Street. The S&P 500 has bounced back from last week's 3.4 percent fall, however, and is well on track for its best week since July.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.2 percent, but was on for a rise of more than 2.5 percent on the week, its first weekly rise since mid-July and biggest weekly gain in five months.
Chinese shares ended another choppy week little changed on Friday. The Shanghai Composite Index .SSEC rose 1.2 percent on the week, a welcome relief for investors after it had lost around 20 percent in the preceding three.
Chinese industrial output, retail sales and investment data on Sunday will give clues on whether the world's second-largest economy is continuing to lose momentum and help set the tone for markets next week. ECONCN
GOLDMAN CUTS OIL FORECASTS
U.S. data on Thursday suggested the labour market was gaining momentum in early September as fewer Americans filed for weekly unemployment benefits. But a separate report showed weak inflation, further clouding the outlook for what the Fed will decide to do at its Sept. 16-17 policy meeting. ID:nL1N11G0UZ
Considering volatile global equities, increasing uncertainty over China and emerging markets, and other major central banks around the world easing policy rather than tightening, it could be a high bar for the Fed to raise rates next week.
"Our analysis suggests that the recent tightening in financial conditions, if maintained going forward, would be equivalent to around three (rate) hikes," Goldman Sachs (NYSE:GS) U.S. economists wrote in a note to clients.
"Given that markets have done much of the Fed's 'dirty work', we expect Fed officials to be on hold at least until December."
In currencies the dollar was up slightly against the yen at 120.70 JPY= and the euro was down 0.1 percent at $1.1265 EUR= , meaning the dollar's trade-weighted index was up slightly at 95.60 .DXY .
The benchmark 10-year U.S. Treasury yield was down nearly 3 basis points on the day at 2.195 percent US10YT=RR , but up 6 basis points so far this week.
The two-year yield, which is more sensitive to interest rate moves and expectations, was flat on the day at 0.735 percent US2YT=RR but up slightly on the week. On Wednesday, it hit a three-month high of 0.766 percent.
In commodities, oil prices fell after Goldman Sachs cut their forecasts and said U.S. oil could fall as low as $20.
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U.S. crude CLc1 was down 2.5 percent at $44.75 a barrel, after rallying 4 percent earlier on U.S. Energy Information Administration data that showed strong demand for gasoline.
Brent LCOc1 , which gained 2.8 percent in the previous session, was down 2.4 percent at $47.70.
Spot gold XAU= slipped to $1,106 an ounce, on track to drop more than 1 percent for the week, its third straight weekly fall.