GLOBAL MARKETS-Oil falls on OPEC, boosting stocks; euro slips

* OPEC mulls boosting production after Libya unrest

* Euro slips for 2nd day on euro zone debt concerns

* Greek 10-year yields hit euro-era high

* Global stocks rise on oil price relief (Updates prices to mid-afternoon)

By Walter Brandimarte

NEW YORK, March 8 (Reuters) - Oil prices fell on Tuesday as OPEC considered raising production for the first time in more than two years, while the euro slipped for a second day on renewed euro zone debt worries.

U.S. stocks rallied as the fall in crude prices eased worries the economic recovery could be choked off. The recovery in stocks appeared tentative, however, as investors feared unrest in Libya and the Middle East could still drive oil prices up, a day after they hit a 2-1/2-year high.

An official oil output increase by the Organization of the Petroleum Exporting Countries would signal the group's determination to cap prices, but continued violence in Libya left investors jittery. The country's oil output, normally 1.6 million barrels per day, is estimated to be down by about 1 million barrels per day.

OPEC oil producers are consulting about a supply boost, Kuwait's oil minister said, but many in the group remain skeptical. [ID:nLDE7270Q8]

"At the moment, I think we just remain nervous -- the situation in the Middle East is still fluid," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago. "We'd like to see a little more clarity there, and we certainly don't have that."

Brent crude prices dropped 1.7 percent to $113.08 per barrel, while U.S. light crude futures were 0.4 percent lower at $105.02.

The three major U.S. stock indexes rallied, also supported by an upbeat profit forecast from Bank of America .

The Dow Jones industrial average <.DJI> rose 130.71 points, or 1.08 percent, to 12,220.74, while the Standard & Poor's 500 Index <.SPX> climbed 11.44 points, or 0.87 percent, to 1,321.57. The Nasdaq Composite Index <.IXIC> was up 19.54 points, or 0.71 percent, at 2,765.17.

Bank of America shares shot up 4.4 percent to $14.65. Financials led gains on the S&P 500, with the S&P financial index <,GSPF> up 2.2 percent.

In Europe, the FTSEurofirst 300 <.FTEU3> index of top shares ended up 0.31 percent at 1,147.43 points, after seesawing between positive and negative.

GREEK YIELDS AT RECORD HIGH

The euro fell against the dollar as concerns about the debt situation of peripheral euro zone countries increased with expectations of an interest rate hike by the European Central Bank next month.

A rise in interest rates would push up borrowing costs across the 17-country euro zone, increasing the cost of funding for highly indebted countries.

Concerns about Europe's debt problems have been on the rise since Moody's cut Greece's credit ratings by three notches on Monday, signaling more downgrades are on the way.

Greece's borrowing costs spiked on Tuesday, with yields paid by 10-year government bonds climbing to 12.946 percent, their highest since the launch of the euro currency.

The euro fell 0.5 percent to $1.3906. It climbed to a four-month high above $1.40 on Monday after ECB president Jean-Claude Trichet said last week that euro-zone interest rates could rise as early as next month.

"The problem with the interest rate-driven trade and Trichet's hawkish comments is that you have to see the other issues behind it," said John McCarthy, director of foreign exchange at ING Capital Markets in New York. "Higher rates will be devastating for the peripheral countries."

Gold eased below $1,430 an ounce, falling further from Monday's record high after the drop in oil prices eased some concerns about inflation. Spot gold was last at $1,425.00.

The price of oil, however, was still considered a wild card in financial markets as the fighting in Libya continued.

"The market is now waiting for the next piece of news to unfold," said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, who said $2 moves were not surprising in such a volatile market.

"A turn for the worse for the market would be oil infrastructure being hit as a result of the fighting. The demise of the current regime or a more forceful statement from OPEC followed by an increase in production would be significant too."

Expectations that the disruption to Libya's oil supply will be prolonged drove more analysts to revised their oil price forecasts higher on Tuesday. Goldman Sachs increased its second-quarter 2011 Brent forecast by $4.50 a barrel to $105. Bank of America-Merrill Lynch raised its outlook to an average price of $122 in the second quarter, up from $86.

The U.S. government's energy forecaster boosted its full-year price forecast by $9 to $102 a barrel this year -- above the average $99.75 in 2008, when oil hit a record.

But prices of U.S. government debt fell as investors felt comfortable buying stocks. Some were also seeking price concessions in this week's U.S. Treasury auctions of $66 billion in debt.

Prices of 10-year Treasury bonds fell 8/32, while their yield rose to 3.544 percent. Despite the fall in prices, the government found strong demand during Tuesday's sale of three-year notes. (Additional reporting by Wanfeng Zhou, Chuck Mikolajczak, Nick Olivari, Brenda Goh and William James; Editing by Leslie Adler)