GLOBAL MARKETS-Oil falls sharply on OPEC; euro below $1.40

* OPEC mulls boosting production for 1st time in 2 years

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

* Greek 10-year yields hit euro-era high

* U.S. stocks rise on oil price relief (Updates prices, adds detail)

By Walter Brandimarte

NEW YORK, March 8 (Reuters) - Oil prices fell sharply on Tuesday as OPEC considered boosting 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 that the economic recovery could be choked off. The recovery in stocks appeared tentative, however, as investors feared that 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. Libya's oil output, which is normally at 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 1.4 percent to $113.40 per barrel, while U.S. light crude futures were 0.5 percent lower at $104.91.

The three major U.S. stock indexes rallied after starting the session flat. An upbeat profit forecast from Bank of America also supported the market.

The Dow Jones industrial average <.DJI> was last up 120.45 points, or 0.99 percent, at 12,211.09, while the Standard & Poor's 500 Index <.SPX> rose 11.96 points, or 0.91 percent, at 1,321.96. The Nasdaq Composite Index <.IXIC> gained 23.25 points, or 0.86 percent, at 2,769.15.

Bank of America shares shot up 4.1 percent to $14.60 on its long-term profit forecast, which was higher than some investors had expected. Financials led gains on the S&P 500. he S&P financial index up 2.1 percent.

In Europe, the FTSEurofirst 300 <.FTEU3> index of top shares ended up 0.3 percent at 1,146.91 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 outweighed expectations of an interest rate hike by the European Central Bank next month.

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 that 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 $1.3907. It had 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.

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.

"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 on 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 $1,427.50. (Additional reporting by Wanfeng Zhou, Chuck Mikolajczak, Nick Olivari, Brenda Goh and William James; Editing by Leslie Adler)