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GLOBAL MARKETS-Stocks rally, copper extends fall as investors assess recession risk

* U.S. stocks sharply higher early

* Copper falls again, oil higher

* Treasury yields edge up (New throughout, updates prices, market activity and comments; new byline, changes dateline, previous LONDON)

By Caroline Valetkevitch

NEW YORK, June 24 (Reuters) - Stocks on global markets jumped on Friday, with Wall Street up more than 2% and the MSCI global index set for a weekly gain after three straight weeks of declines, as sliding commodity prices eased worries about inflation.

U.S. Treasury yields edged higher but held just above two-week lows.

Investors have been worried that aggressive rate hikes by the Federal Reserve and other major central banks to combat inflation could cause a recession, which would reduce demand for commodities and other items.

Copper prices were set for their biggest weekly fall in a year, with benchmark copper on the London Metal Exchange 1.4% lower at $8,290 a tonne on Friday. Other industrial metals also tumbled.

Oil prices were higher Friday after falling sharply this week.

"The (stock) market came into this week oversold, so it was time for a bounce," said Quincy Krosby, chief equity strategist at LPL Financial in Charlotte, North Carolina.

"We've seen oil prices come down along with other commodity prices," she said, adding that the market's move is reflecting "expectations of at least a marked slowdown if not an out-and-out recession."

The benchmark S&P 500 last week confirmed a bear market.

In U.S. Treasuries, yields have dropped from more than decade highs reached before last week's Fed meeting. The U.S. central bank hiked rates by 75 basis points at the meeting.

Fed funds futures traders have lowered expectations on how high the Fed is likely to raise its benchmark rate. They are now pricing for the rate to rise to 3.49% by March, down from expectations last week that it would increase to around 4%. It is currently 1.58%.

The Dow Jones Industrial Average rose 656.17 points, or 2.14%, to 31,333.53, the S&P 500 gained 86.74 points, or 2.29%, to 3,882.47 and the Nasdaq Composite added 234.04 points, or 2.08%, to 11,466.23.

The pan-European STOXX 600 index rose 2.62% and MSCI's gauge of stocks across the globe gained 2.16%.

U.S. crude recently rose 3.39% to $107.80 per barrel and Brent was at $113.40, up 3.04% on the day.

In the foreign exchange market, the dollar index fell 0.297%, with the euro up 0.27% to $1.0551.

The Japanese yen weakened 0.08% versus the greenback at 135.04 per dollar.

The battered yen has steadied this week. Japanese inflation topped the Bank of Japan's 2% target for a second straight month, putting more pressure on its ultra-easy policy stance.

(Reporting by Caroline Valetkevitch; Additional reporting by Carolyn Cohn in London and Brijesh Patel in Bengaluru; editing by Andrew Heavens and David Gregorio)

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