GLOBAL MARKETS-Wall Street, dollar gains on Wells Fargo report

* Wall Street rallies on likely record Wells Fargo profit

* Dollar rises vs yen, cheered by banks, economic outlook

* Bonds slip on rising stocks, easing of jobless claims

* Oil rises on hope better jobless rate to revive economy (Adds close of U.S. markets)

By Herbert Lash

NEW YORK, April 9 (Reuters) - News that No. 4 U.S. bank Wells Fargo will report record first-quarter earnings sparked a rally on Wall Street and lifted the dollar on Thursday on hopes a sector that sparked the global financial crisis is healing.

Oil prices rose almost 6 percent, fueled by the equity rally and by data that showed the number of American workers filing new claims for unemployment benefits fell last week.

U.S. Treasury debt prices fell in an abbreviated session before the Easter weekend and U.S. gold futures finished with modest losses as rising expectations that economic recovery was on the horizon hurt the appeal of traditional safe-havens.

The rally in global stocks capped a fifth straight week of gains among the major U.S. stock indexes, including the Dow and and S&P 500, and MSCI's world equity index <.MIWD00000PUS>.

Investor confidence got a boost early in the day when Japan's ruling party said it would increase long-term lending to companies by a government-affiliated bank by 8 trillion yen ($80 billion). For more see [ID:nT325185].

U.S. economic reports, including the jobless claims, gave investors more reason to cheer.

Data showing the U.S. trade deficit shrank in February to its smallest since November 1999 backed a view that the drop in first-quarter gross domestic product was probably not as steep as the previous period's 6.3 percent annual pace of decline.

But it was Well Fargo that boosted sentiment the most after the San Francisco-based bank said it expects to report net income of about $3 billion for the first quarter.

The bank's estimate was more than twice what analysts expected on average and suggested that banks with traditional lending might ride out the recession better than expected.

Wells Fargo shares jumped 32 percent and lifted the battered banking sector, with the KBW Banks index <.BKX> climbing 20 percent.

JPMorgan Chase gained 19.4 percent, making it the biggest contributor to the Dow, followed by American Express , up 19.8 percent. Bank of America soared 35 percent to $9.55 a share. Citigroup only climbed 12.6 percent and remains mired at barely $3 a share.

The banking sector has been a key gauge of market sentiment worldwide as banks have been at the heart of the global crisis. The current rally was sparked in March when several major banks said they had made money in the first two months of the year.

"This news is good news," Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati, said about Wells Fargo's preliminary results.

"We think that there are at least enough signs in the positive category to give us hope that economic conditions may be flooring (and) the capital markets quite likely will be establishing a floor as well," he said.

The CBOE volatility index <.VIX> ended down 5.1 percent at 36.87, its lowest close since September.

The Dow Jones industrial average <.DJI> closed up 246.27 points, or 3.14 percent, at 8,083.38. The Standard & Poor's 500 Index <.SPX> gained 31.40 points, or 3.81 percent, at 856.56. The Nasdaq Composite Index <.IXIC> rose 61.88 points, or 3.89 percent, at 1,652.54.

European shares closed higher, buoyed by the positive news from Wells Fargo and U.S. economic data. The FTSEurofirst 300 <.FTEU3> index of top European shares rose 2.1 percent to close at 778.39 points, its fifth straight weekly gain.

Barclays rose 12.5 percent after it said it was selling its iShares asset management business to private equity firm CVC Capital Partners [CVC.UL] for 3 billion pounds ($4.4 billion) in a deal that will be 70 percent funded by the British bank. [ID:nL9253562]

The dollar rose against the yen on Wells Fargo and the economic data.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.49 percent at 85.649. Against the yen, the dollar rose 0.68 percent at 100.39.

The euro fell 0.74 percent at $1.316.

"The Wells Fargo news was tremendous and everyone seems to be looking at a positive first quarter in the U.S.," said Melvin Harris, a market strategist at Advanced Currency Markets in New York. Wells Fargo and the jobless claims report "have pushed risk appetite dramatically higher," he said.

Debt prices fell.

The benchmark 10-year U.S. Treasury note fell 17/32 in price to yield 2.92 percent. The 2-year U.S. Treasury note fell 2/32 in price to yield 0.97 percent.

"Stock markets have been remarkably buoyant. The less pessimistic mood means investors are more interested in risk assets generally, and less so in government bonds," said Everett Brown, rates strategist at IDEAGlobal in London.

Oil, which rose, has closely tracked stocks this year as investors seek signs that economic recovery would boost demand.

U.S. crude rose $2.86 to settle at $52.24 a barrel, while London Brent rose $2.47 to $54.06.

Gold for June delivery eased $2.60 to settle at $883.30 an ounce in New York. (To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog click on http://blogs.reuters.com/hedgehub) (Reporting by Gertrude Chavez-Dreyfuss, Burton Frierson in New York and Joe Brock and Jan Harvey in London; writing by Herbert Lash, Editing by Chizu Nomiyama)