By Marc Jones and David Gaffen
LONDON/NEW YORK (Reuters) - Equity markets worldwide extended the week's rally on Friday, and oil prices rebounded from recent lows as traders said investors were starting to reduce exposure as the end of year approaches.
Wall Street posted modest gains after the S&P 500's best two-day rally in three years brought the index within 1 percent of an all-time high, built on favorable comments from the U.S. Federal Reserve.
Markets overall were ending 2014's final full week of trade on a high. Wall Street's momentum, hopes that Russia was stabilizing and a recommitment from Japan to its massive stimulus campaign pushed Asian stocks to their best day in 15 months.
"We have digested the drop in oil, we have gotten past the Fed, and now we will see what we will do for the rest of the year," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
Brent oil prices also rose back above $60 a barrel, recovering from near a 5-1/2-year low as investors squared books ahead of the year-end break after a six-month slide. [O/R]
That helped the equally hard-hit Russian rouble
"I think Russia still bears watching over Christmas because oil has not bottomed out. A dip in Brent prices below $60 means that financial stability and economic stability is still at risk," said Phyllis Papadavid, currency strategist with BNP Paribas in London.
At one stage this week the rouble was down about 20 percent against the dollar despite a massive hike in Russian interest rates, putting at risk the stability on which President Vladimir Putin has built his popularity.
In Europe, worries emerged that the European Central Bank's money-printing plans could come with a number of restrictive strings attached.
Officials speaking to Reuters on condition of anonymity said the ECB may require countries such as Greece or Portugal to set aside extra money or provisions to cover potential losses from any bond-buying it embarks on next year.
Wall Street was expecting some volatility during "quadruple witching," the expiration of stock options, index options, index futures and single-stock futures. The Dow Jones industrial average <.DJI> was up 20.67 points, or 0.12 percent, at 17,798.82. The Standard & Poor's 500 Index <.SPX> was up 5.42 points, or 0.26 percent, at 2,066.65. The Nasdaq Composite Index <.IXIC> was up 10.28 points, or 0.22 percent, at 4,758.67.
Markets spent two days celebrating the Fed's pledge to be patient in raising rates, with the S&P 500 notching the biggest daily gain since January 2013 and a 4.5 percent jump in two sessions.
In the currency market, the euro
Yields on U.S. 10-year bonds
(Additional reporting by Marius Zaharia and Jamie McGeever in London and Chuck Mikolajczak in New York; Editing by Hugh Lawson, Crispian Balmer and Dan Grebler)
