* Oil falls on Chavez's Libya mediation proposal
* World stocks rise as oil dips
* Jobless claims boost U.S. stocks
* ECB buoys euro with inflation comments (Updates prices, quotes, adds oil settlement)
By Caroline Valetkevitch
NEW YORK, March 3 (Reuters) - U.S. stocks shot up on Thursday after a pullback in oil prices and upbeat U.S. labor market data, while the euro rallied on the European Central Bank president's warning about inflation.
Data showing new U.S. claims for unemployment benefits fell last week to their lowest level in more than 2-1/2 years was the latest optimistic reading to bolster hopes for an upside surprise in Friday's key payrolls report.
ECB President Jean-Claude Trichet's comments on inflationary risks were widely expected, but he surprised investors by saying the bank may raise interest rates as soon as next month.
The heightened concerns about inflation followed months of sharp gains in oil and other commodities, with Brent crude oil up about 15 percent since the end of January.
The latest batch of purchasing managers' indexes (PMI) in Europe and elsewhere suggested fast-building inflationary pressures. For details, see [ID:nLDE7220L8]
World stocks as measured by the MSCI Index <.MIWD00000PUS> rose 1.1 percent. On Wall Street, the Dow Jones industrial average <.DJI> was up more than 200 points, or 1.7 percent.
"The package of (U.S.) data from this week points to a stronger-than-consensus estimate for tomorrow," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey, referring to a rise in non-farm payrolls.
On Wednesday, ADP data showed U.S. private-sector employers added more jobs than forecast last month. In another encouraging sign, a gauge of employment in a report on the U.S. services sector on Thursday rose to a near five-year high in February. [ID:nN02222564]
A Reuters survey for Friday's February jobs report shows nonfarm payrolls probably increased by 185,000 after snowstorms held growth to a paltry 36,000 jobs in January. The survey was conducted before data on Monday showed strong factory hiring, which prompted some economists to rethink their forecasts. [ID:nN02222564]
The "whisper number" among traders is that the non-farm payrolls will rise by over 200,000.
OIL DROPS, GOLD SLIPS
Oil prices fell after Venezuela President Hugo Chavez made a proposal to broker a peace deal in Libya.
Some oil analysts suggested the Chavez proposal was a convenient excuse for traders to adjust their positions.
"Looks like profit taking and buying into the dip. The market was a little overstretched to the upside and the Chavez peace proposal gave traders a reason to square positions," said Tom Bentz, broker at BNP Paribas Commodities Futures Inc in New York.
Brent crude oil
On the New York Mercantile Exchange, April crude
Investors worry if it is not halted soon, the political instability could spread to major oil producer Saudi Arabia, a central U.S. ally in the region, and other oil suppliers.
Global and euro zone services PMI graphic:
http://r.reuters.com/vax38r
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The euro gained against the U.S. dollar to a fresh
four-month high. It climbed as high as $1.3976
Gold prices fell on Trichet's comment. Spot gold
Trichet said the ECB will exercise "strong vigilance" over rising inflation. For Trichet's comments see [ID:nLOOKCBANK]
WALL ST RALLIES, BONDS SLIDE
In the U.S. stock market, the Dow Jones industrial average <.DJI> was up 209.72 points, or 1.74 percent, at 12,276.52. The Standard & Poor's 500 Index <.SPX> was up 23.18 points, or 1.77 percent, at 1,331.62. The Nasdaq Composite Index <.IXIC> was up 53.59 points, or 1.95 percent, at 2,801.66.
As stocks rose on the jobless claims data, U.S. bonds
fell. The benchmark 10-year note