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World stocks hit five-week highs last Thursday as data on U.S. private sector hiring boosted optimism about the economy, while oil prices posted their biggest gain in two months on strong fuel demand.

The euro rose against the dollar for the first time in three sessions after European Central Bank President Jean-Claude Trichet said the bank would relax rules and keep providing liquidity to struggling Portugal, allaying worries about Europe's debt crisis.

On Wall Street, stocks rallied, with the Nasdaq notching an eighth day of gains, as surprisingly strong hiring by U.S. private employers in June and strong retail sales added to optimism a day before the critical June payrolls report.

Payrolls processor ADP reported that U.S. private employers added 157,000 jobs last month, more than double the 68,000 expected by the market.

"We went through a multi-month period of disappointing data, and now it is coming in better than anticipated, and that reset of expectations is providing a nice tailwind to markets," said Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles.

Wall Street was also boosted by a decline in the number of claims for new jobless benefits.

Analysts said stocks could rally further last Friday if the Labour Department puts June jobs growth at more than 125,000.

The Dow Jones industrial average closed up 93.47 points, or 0.74 percent, at 12,719.49.

The Standard & Poor's 500 Index was up 14.00 points, or 1.05 percent, at 1,353.22.

The Nasdaq Composite Index was up 38.64 points, or 1.36 percent, at 2,872.66.

Global and European stocks hit their highest levels since June 1.

The MSCI world equity index rose 0.8 percent.

The pan-European FTSEurofirst 300 index closed up 0.4 percent at 1,123.32.

Oil prices surged as the stronger labour market data and decline in U.S. crude stockpiles supported views of an economy in recovery.

Stockpiles fell an unexpectedly high 3.2 million barrels last week ahead of the long Independence Day weekend, data from the American Petroleum Institute showed.

The United States is the world's largest energy consumer.

Brent crude oil settled up more than 4 percent above $118 per barrel in London, its highest since May 9, according to Reuters data.

U.S. crude finished up 2 percent at above $98.

The euro was last up 0.2 percent against the dollar at $1.43490, rebounding from a session low of around $1.42, Reuters data showed.

The euro zone single currency recouped losses against the dollar as investors were encouraged by the ECB's decision to suspend minimum credit rating requirements for Portugal's debt despite the recent Moody's downgrade of its rating to junk.

The ECB's decision to help Portugal "has provided more reassurance that European authorities will support the euro at almost any cost," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.

"That has taken away some of the uncertainty."

U.S. Treasuries prices fell as the encouraging jobs data and the ECB's support for Portugal reduced worries about the economy and sovereign fiscal problems in Europe.

The benchmark U.S. 10-year Treasury note last traded at 8/32 in price to yield near 3.14 percent, below the six-week high of 3.22 percent set last week.

Treasuries fared slightly better than German Bunds.

The 10-year Treasury yield premium over 10-year Bunds shrank to 17.9 basis points from 18.8 last Wednesday.

(Editing by James Dalgleish and Leslie Adler)