My guy friend likes me and I don't know what to do?

My friend, his name is James, and I have been talking a lot recently. He and I both play the violin and we both tend to talk a lot because of it. I like him as a friend, but recently, a girl friend of mine told me that he wanted to go out with me. I like him, but only as a friend. I am not sure what to do, because recently he has been subtly hinting things, and I don't want to hurt his feelings by bringing it up. What should I do?