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The Nasdaq stock market posted its biggest weekly advance since July 2009, and gains elsewhere in global equity markets suggested risk aversion has dissipated.

The euro headed for its best week in eight against the U.S. dollar, even as it slipped 0.7 percent to $1.3785 on Friday. The announcement on Thursday that the world's leading central banks will boost short-term dollar funding for European banks facing a dollar shortage buoyed the euro.

"The market seems to be a little bit more reassured that (their) support will not allow for major disruption in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion in assets.

A sharp decline in French and Italian banking stocks, along with the euro's slide, showed caution still lingers despite encouraging signs of growing efforts to resolve the debt crisis.

But even though central bank support for funding European banks eased fears that Greece's fiscal woes might bring down the financial system in Europe, no one suggested the crisis was fully resolved.

"There is still a lot of open-ended issues out there, which means this situation will remain pretty fluid," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"All of what we just gained in the last five trading sessions could be given back," Luschini said, referring to Wall Street, whose rally has surpassed by a day the rally in European stock markets.

The Dow Jones industrial average .DJI closed up 75.91 points, or 0.66 percent, at 11,509.09. The Standard & Poor's 500 Index .SPX gained 6.90 points, or 0.57 percent, at 1,216.01. The Nasdaq Composite Index .IXIC added 15.24 points, or 0.58 percent, at 2,622.31.

MSCI's all-country world equity index .MIWD00000PUS rose 0.7 percent, while the FTSE Eurofirst index .FTEU3 of top regional European shares closed up 0.6 percent at 937.85.

A rally in banks stocks lost steam, however, and the STOXX Europe 600 Banks index .SX7P finished up 0.3 percent after paring earlier strong gains.

BNP Paribas (BNPP.PA), France's largest listed bank, lost 7.6 percent, and UniCredit (CRDI.MI), Italy's biggest bank, shed 7 percent.

U.S. bank stocks also slid, with the KBW Bank index .BKX off 0.4 percent.

Next week's meeting of the Federal Reserve came into view, amid speculation policy makers might provide further stimulus to the economy.

"The news yesterday that central banks are offering dollar liquidity to European lenders is regarded as being the start of an accelerated process in addressing the debt crisis," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

"With the Fed meeting next week, (the ECB news) sort of served as a threshold. Investors are now thinking that we have entered a process toward additional monetization."

Markets shrugged off a survey that showed even though U.S. consumer sentiment inched up in early September, Americans remained gloomy about the future, with a gauge of expectations falling to the lowest level since 1980.

U.S. Treasury securities edged higher.

The benchmark 10-year U.S. Treasury note was up 6/32 in price to yield 2.06 percent.

Brent crude fell, reversing earlier gains, as the euro weakened and the consumer outlook fell to a 31-year low, according to a preliminary survey of consumer sentiment by Thomson Reuters/University of Michigan.

Brent crude for November settled down 8 cents at $112.22 a barrel.

U.S. crude took a bigger fall, settling down $1.44 a barrel to $87.96.

"Oil investors have to be getting worried about global demand going forward, and the risk of contagion in Europe from Greece to other economies," said Richard Ilczyszyn of MF Global in Chicago.

Gold rallied as the gloomier U.S. consumer sentiment revived the bid for safe-haven assets.

U.S. gold futures for December delivery settled up $33.30 at $1,814.70 an ounce.

(Reporting by Gertrude Chavez-Dreyfuss, Emily Flitter, Joshua Schneyer and Chris Kelly in New York and Joanne Frearson, Ikuko Kurahone, Pratima Desai and Anirban Nag in London; Writing by Herbert Lash, Editing by Leslie Adler)

The leaders took steps this week to show they were tackling the debt crisis, which has plagued markets for weeks, including coordinated central bank moves to give European banks greater access to funding in dollars.

U.S. Treasury Secretary Timothy Geithner urged EU finance ministers to leverage their bailout fund to better tackle the debt crisis and to start speaking with one voice, but there was no agreement on what steps to take.

Still, the encouraging headlines out of Europe helped the S&P 500 post a 5.4 percent gain for the week, its best since early July, and the five-day string of gains was the broad index's strongest since the end of June.

The Nasdaq composite index registered its best weekly percentage advance since July 2009, reflecting strength in technology shares on Friday. The S&P tech index .GSPT rose 1 percent, while the S&P consumer discretionary index .GSPD also gained 1 percent.

"The market seems to be a little bit more reassured that (their) support will not allow for a major disruption in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

The Dow Jones industrial average .DJI ended up 75.91 points, or 0.66 percent, at 11,509.09. The Standard & Poor's 500 Index .SPX was up 6.90 points, or 0.57 percent, at 1,216.01. The Nasdaq Composite Index .IXIC was up 15.24 points, or 0.58 percent, at 2,622.31.

The Nasdaq gained 6.3 percent for the week while the Dow rose 4.7 percent.

Still, major obstacles must be overcome in solving the euro zone's debt crisis.

Less than 75 percent of private sector creditors have signaled they will take part in a scheme to buy back Greek debt, far less than the 90 percent target set by Greece. The shortfall could jeopardize the planned second bailout package for Athens.

Greece's international lenders said on Friday they would delay a crucial visit to the country next week, and European finance ministers demanded that Athens fulfill its pledges to win further aid.

After the market's close, Moody's Investors Service left Italy's Aa2 foreign sovereign currency credit rating unchanged but reiterated that it remained on review for a possible downgrade.

Among U.S. stocks, General Electric Co (GE.N) gained 1.6 percent to $16.33 after forming two new joint ventures in Russia that it said could generate $10 billion to $15 billion in new revenue over the next few years.

Another Dow component, United Technologies Corp (UTX.N), is lining up financing for a major acquisition in the United States, according to people with direct knowledge of the matter.

The U.S. industrial conglomerate is tapping the credit market for funds that could top $20 billion, said one of the sources. Its shares slipped 0.1 percent to $75.50.

One of the worst hit stocks, BlackBerry maker Research In Motion Ltd (RIM.TO)(RIMM.O) slid 19 percent to $23.93 a day after it reported a steep drop in quarterly profit and offered little hope of a turnaround soon.

U.S. economic data showed consumer sentiment inched up in early September, but Americans were gloomy about the future. A gauge of expectations fell to its lowest level since 1980.

Volume was a strong 8.8 billion shares on the New York Stock Exchange, Amex and Nasdaq, above last year's average of roughly 7.6 billion.

Advancers led decliners by 15 to 14 on the NYSE and by about 7 to 6 on Nasdaq.

(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

Interest in AOL from private equity firms ramped up after the company's stock plummeted about 30 percent on dismal earnings results last month. Allen & Co and Bank of America Securities are advising AOL on strategic alternatives, including a possible sale, sources said.

Problem is, the private equity firms have now turned their attention to Yahoo, which is reportedly seeking its own sale after firing Chief Executive Carol Bartz on September 6 and attracting the ire of activist investor Daniel Loeb.

AOL declined to comment for this story.

Sources said the top-tier private equity firms that were looking at AOL are now setting their sights on the company famous for its purple logo and peppy exclamation point, viewing it as more valuable and housing more attractive assets than AOL.

"Yahoo has jumped to the forefront," said one industry source familiar with the situation.

Indeed, according to this industry source and one other source, several PE firms have lines out to at least two media companies to see if they are willing to partner on a bid for all or pieces of Yahoo. Both sources declined to name the PE firms or media companies.

AOL and Yahoo are two vastly different business in terms of market value -- roughly $1.6 billion and $19 billion respectively -- meaning that there are different pools of potential buyers for each asset. The big private equity firms with massive amounts of money under management are able to go after Yahoo on their own or with a strategic partner. The smaller private equity firms are better equipped to digest AOL and likely couldn't pursue Yahoo absent being part of a consortia of buyers.

Or, to put it another way, AOL's second-class assets are now only attracting the interest of second-tier buyers.

Indeed, only when compared to AOL does Yahoo come out the winner.

"They are both in rough shape, but AOL has more structural challenges than Yahoo," said Ross Sandler an analyst with RBC Capital Markets.

Compounding AOL's problems is the fact that its lucrative subscriber dial-up business is also one of greatest liabilities. Sandler said dial-up is partly responsible for a 25 percent year-on-year decline in AOL's free cash flow.

"At Yahoo you don't have those issues," he said.

To make up for the loss of subscription revenue, AOL is training its sights on advertising sales. But even that is having set backs. Its launch last September of a more expensive large ad-format with interactive panels that dominate a Web called Project Devil is still trying to gain traction on Madison Avenue.

Under Armstrong, AOL has also developed a penchant for investing in projects that have yet to pay out.

Case in point: Patch.com. AOL has shoveled roughly $160 million into the network of more than 800 neighborhood-oriented websites dedicated to local news, many of which are less than a year old. Yet Patch is on track to lose $140 million to $150 million this year, estimates Sandler.

Though expensive, at least AOL's attention-grabbing acquisition of the Huffington Post for $315 million is delivering returns since the business is profitable.

Yahoo's coming on the block couldn't have come at a worse time for Armstrong. The former Google Inc ad sales executive has seen his reputation dented since taking over AOL. According to one of the industry sources, Armstrong' reputation has taken as much of a hit as Bartz's, even before he bungled the dust-up that resulted in TechCrunch founder Michael Arrington's ouster.

(Reporting by Jennifer Saba; Editing by Peter Lauria and Richard Chang)

UBS was in turmoil as ratings agencies warned lax risk management could prompt downgrades and senior executives canceled engagements to meet financial regulators.

Adoboli, 31, worked as a director of exchange traded funds at UBS. He will appear at City of London Magistrates court later on Friday, police said.

UK law firm Kingsley Napley has been hired to represent Adoboli. The firm also advised rogue trader Nick Leeson, whose $1.4 billion derivatives losses triggered the collapse of Britain's Barings Bank in 1995.

Most market speculation has centered on the possibility that the UBS loss resulted from the shock decision by the Swiss central bank last week to impose a cap on the red-hot franc, sending the currency plunging and Swiss shares sharply up.

A UBS spokesman would only say that the losses were made in equities.

One UBS trader in London said staff were expecting news of more job cuts in the next two weeks as well as zero bonuses.

"In my team people are scared and are playing low profile. The idea is to stay there and keep your job. In the current situation, it would be difficult to find another job anywhere else," the person told Reuters on condition of anonymity.

Britain's Financial Services Authority and Switzerland's FINMA markets regulator were both in close contact with the bank, spokesmen said.

A senior UBS banker said regular meetings and social events involving senior management had been canceled, which he presumed was because of crisis management or meetings with regulators.

"Morale is dreadful... It's very damaging to our reputation. Equities is one of the businesses where we thought we had got it right," the banker said.

MASSIVE OVERHAUL

Analysts said the massive loss, announced on Thursday, was the final nail in the coffin for UBS' investment bank which has struggled, like others in the industry, against falling markets and tough new regulation as well as the soaring Swiss franc.

Reputational damage from the scandal will force a restructuring many had already thought inevitable and analysts and insiders expect UBS may now have to move before November 17, when it was expected to make the announcement at an investors' day in New York.

"I wouldn't be surprised if we got a preliminary confirmation of a major scaleback soon, even this weekend. The announcement can't wait until Q3 results or the investor day," said Matthew Czepliewicz, an analyst at Collins Stewart.

Switzerland's two biggest political parties, the Swiss People's Party and the Social Democrats, want UBS to split investment banking from its wealth management arm and pressure for it to take radical action is likely to mount in the wake of the scandal.

Ratings agencies Standard & Poor's and Moody's put the bank's credit rating on negative watch, while Fitch said it had put UBS's viability rating on negative watch.

Fitch said the incident "strengthens the arguments for UBS to down-scale its investment banking unit" while S&P added: "UBS is currently undertaking a strategic review of the size and shape of the investment bank division and we consider that the trading loss may influence the outcome of this process."

HISTORY OF MISHAPS

UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank. The bank has had a history of major risk management glitches.

The $2 billion that UBS said had been lost effectively canceled out the first year of savings from a recently-announced cost-cutting plan involving the loss of 3,500 jobs.

"We believe that yesterday's event could have personnel consequences on senior management level," said Vontobel analyst Teresa Nielsen. "The exit from non-core businesses inside the investment bank could be accelerated."

In the firing line are Chief Executive Oswald Gruebel, himself a former trader who was brought out of retirement in 2009 to try to turn UBS around, and investment bank boss Carsten Kengeter, the bank's highest paid employee last year.

UBS stock, which fell 10.8 percent on Thursday to end at its lowest close since March 2009, was up 5.6 percent at 10.3 francs by 1340 GMT compared with a 2.7 percent rise on the European banking sector index.

New losses in UBS's investment bank risk scaring rich clients and prompting a further flight from its huge private bank, the core of its business that used to be the world's biggest wealth manager but has slipped to third place.

"The concern from the wealth management client's point of view is that if UBS cannot even manage their own proprietary trading positions, how can the client expect UBS to manage money on his or her behalf," said Melvyn Teo, professor of finance at Singapore Management University.

The suspect's father, John Adoboli, a retired United Nations employee from Ghana, said he knew finance was a high risk area but he had no doubts about his son's integrity.

"From what the reports are saying, it could be that he made a mistake or wrongful judgment," he told Reuters by phone from the Ghanaian port city of Tema.

($1 = 0.870 franc)

(Additional reporting by Steve Slater, Sophie Sassard, Sarah White and Huw Jones in London, Kwasi Kpodo in Accra and Kevin Lim in Singapore; Editing by Sophie Walker)

Treasury Secretary Timothy Geithner was holding talks with European Union finance ministers on Friday on the possibility of leveraging the euro zone's bailout fund to help resolve the debt crisis.

At 9;55 a.m. ET, Thomson Reuters/University of Michigan Surveys of Consumers will release preliminary September consumer sentiment index. Economists expected a reading of 56.5 compared with 55.7 in the final August report.

Franco-Dutch airline Air France-KLM (AIRF.PA) said it planned to order 50 long-haul jetliners from Airbus (EAD.PA) and Boeing (BA.N) in a deal worth around $12 billion at list prices.

The Treasury Department will release net capital flows and foreign Treasury purchases for July at 1300 GMT. In June, net capital inflows were $3.7 billion, foreign net sales of U.S. Treasuries were $4.5 billion.

Private equity firm Silver Lake is considering a bid for internet company Yahoo Inc (YHOO.O), according to reports on Thursday.

Economic Cycle Research Institute (ECRI) releases at 1430 GMT its weekly index of economic activity for September 9. In the prior week the index read 123.0.

The Federal Reserve issues at 1600 GMT Flow of Funds Accounts of United States for the second quarter of 2011.

U.S. shares of Research In Motion (RIMM.O) were down 10 percent after the bell on Thursday as the company reported a steep drop in quarterly profit on limp sales of its smartphones and tablets.

European shares rose in early trade on Friday, adding to gains following central bank action on Thursday to boost liquidity. The FTSEurofirst 300 .FTEU3 index of top European shares was up 0.3 percent. Japan's Nikkei average .N225 closed 2.3 percent stronger.

The Dow Jones industrial average .DJI was up 186.45 points, or 1.66 percent, at 11,433.18. The Standard & Poor's 500 Index .SPX was up 20.43 points, or 1.72 percent, at 1,209.11. The Nasdaq Composite Index .IXIC was up 34.52 points, or 1.34 percent, at 2,607.07.

(Reporting by Atul Prakash; Editing by Dan Lalor)