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Trading capped a week of extreme volatility marked by Wall Street's gauge of anxiety, the VIX, which on Thursday soared to its highest level since July. Stock market volumes surged on down days and fell on up days.

Although Wall Street finished Friday's session higher, all three major U.S. stock indexes ended the week in the red. The benchmark S&P 500 lost 1.9 percent, its biggest weekly decline since November.

World shares as measured by the MSCI .MIWD00000PUS advanced 0.6 percent. That gain helped the index erase some of its 5.6 percent drop over the past six trading days and brought the index near even for 2011.

Oil fell from earlier highs after Libya declared a ceasefire in the country to protect civilians and comply with a United Nations resolution passed overnight. It had surged after the U.N. Security Council endorsed a no-fly zone for Libya, and authorized "all necessary measures" to protect civilians against Gaddafi's forces.

"That (Mideast unrest) quieting down and Japan quieting down will lead to buying," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

Brent crude had jumped above $117 a barrel on worries of escalating unrest in oil-rich countries after the U.N. action to contain Libya's Muammar Gaddafi.

Brent for May delivery dropped to around $114 after the ceasefire was declared; the contract settled at $113.93 a barrel, down 97 cents. U.S. crude fell 35 cents to end at $101.07 a barrel.

The dollar climbed 2.6 percent to 80.86 yen, retreating from a session high of around 82 yen, following the G7 announcement to intervene to stop the currency's sharp rise in recent days.

The show of solidarity by the G7 major developed economies to support Japan through its biggest crisis since World War Two comes a day after the yen soared to a record 76.25 per dollar in chaotic trading. It is the first coordinated currency intervention by the G7 in a decade.

The G7 "is just helping sentiment, and stocks sensitive to risk will push on. But optimism is going to be guarded as there are no firm resolutions surrounding the Japanese nuclear crisis and the Middle East, and anything can happen on the weekend," said Giles Watts, head of equities at City Index in London.

WALL ST BUOYED BY NIKKEI AND BANKS

On Wall Street, stocks held gains but pulled back from session highs due to caution before a long weekend in Japan, where markets will be closed on Monday for a holiday.

Japan's Nikkei share index .N225 climbed 2.7 percent, recouping some of the week's losses as Japan reeled from the aftermath of an earthquake, tsunami and nuclear power plant crisis.

The Dow Jones industrial average .DJI gained 83.93 points, or 0.71 percent, to end at 11,858.52. The Standard & Poor's 500 Index .SPX added 5.49 points, or 0.43 percent, to 1,279.21. The Nasdaq Composite Index .IXIC rose 7.62 points, or 0.29 percent, to close at 2,643.67 -- well off its session high of 2,665.56.

Private equity fund PAI Partners and French dairy co-operative Sodiaal said on Friday they were in exclusive talks with General Mills. They did not give specifics on the timing of a final deal, nor how General Mills would finance it.

The announcement capped months of negotiations over Yoplait, the world's second-biggest yogurt brand after Danone.

The brand attracted bids from food groups including Mexican Groupo Lala, Swiss company Nestle, and Lactalis, Europe's largest dairy group.

"Negotiations are in progress, and consultation procedures with the respective works' councils are being initiated," General Mills said.

The deal will create two structures -- an entity that holds the brand rights and a company that runs the operations.

General Mills will control the operational part with 51 percent ownership, while the brand entity is evenly divided.

The structure allows Sodiall to remain a shareholder, something it had long sought.

"General Mills will partner with Sodiaal in expanding and growing the Yoplait brand and businesses in France, Europe and around the world," it said.

General Mills has held the license to Yoplait yogurt since 1977 in the United States, where its market share is 35 percent.

The deal provides an exit for PAI Partners, which first invested in Yoplait in 2002.

(Editing by Dan Lalor)

The Labor Department said on Thursday its Consumer Price Index rose 0.5 percent, the largest gain since June 2009, after increasing 0.4 percent in January. Core CPI -- excluding food and energy -- rose 0.2 percent after advancing by the same margin in January.

Though the increase in core CPI was a touch above economists' expectations for a 0.1 percent gain, it suggested that surging costs for energy and other commodities, which have been hitting producers and consumers alike, had yet to generate the type of broad inflation that would spur the Federal Reserve to respond.

The Fed said on Tuesday it expected the upward price pressure from commodities to be temporary but it would closely monitor inflation and inflation expectations.

"I don't think it means anything for the Fed. They're going to probably wind up saying some of this is transitory. It won't be sustained," said Tom Porcelli, U.S. economist at RBC Capital Markets in New York.

JOBLESS CLAIMS FALL

In another report, the Labor Department said initial claims for state unemployment benefits fell 16,000 to a seasonally adjusted 385,000 last week, broadly in line with expectations, hinting at a strengthening in the labor market.

The four-week moving average of unemployment claims -- a better measure of underlying trends - dropped 7,000 to 386,250, the lowest since mid-July 2008 and staying below the 400,000 level for a third straight week.

U.S. stock index futures pared gains on the inflation data, while prices for government debt held onto earlier losses. The dollar pared losses versus the euro.

Rising food and energy prices are exerting upward pressure in some major economies and putting monetary authorities on the edge. But high unemployment in the United States, which is restraining wage growth, is seen dampening inflation pressures from the strong commodity prices.

In the 12 months to February, overall consumer prices rose 2.1 percent, the largest increase since April, after rising 1.6 percent in January. Core CPI rose 1.1 percent year-on-year, the largest increase in one year, after increasing 1 percent in January.

Data on Wednesday showed U.S. wholesale prices rose at their fastest pace in just over 1-1/2 years in February, but they were well contained outside of food and energy.

The increase in overall consumer inflation last month was broad-based, with energy the largest contributor. Energy prices rose 3.4 percent after increasing 2.1 percent in January. Food prices increased 0.6 percent, the largest gain since September 2008.

Core consumer prices were lifted by increases in airline fare, new vehicles, shelter and medical care -- confirmation the disinflationary trend in core inflation has bottomed.

Shelter costs, which account for about 40 percent of core CPI, rose 0.1 percent for a fifth straight month. Apparel fell 0.9 percent, the largest decline since July 2006.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

Rising alarm over the unfolding disaster in Japan following an earthquake and tsunami has sent shivers through world markets, hitting shares and other riskier assets, such as commodities, while prompting investors to scurry for the safety of government debt.

The yen soared in disorderly trading to a record high against the dollar on speculation Japan will repatriate billions of dollars in overseas funds to pay for massive reconstruction that is expected to be much costlier than the bill following the Kobe earthquake in 1995.

"I think the world economy is going to go right down and it has happened at a time when financial markets are still fragile," said a central banker of a Group of Seven country.

The comments, made on condition of anonymity, are a testimony to the degree of concern among top policymakers about the potential impact of Japan's triple disaster and in particular its race against time to prevent a nuclear meltdown.

The G7 financial ministers and central bankers will hold a telephone conference call around 2200 GMT on Thursday (7 am Tokyo time Friday), Japan's finance minister, Yoshihiko Noda, said as financial markets braced for potential currency intervention following the yen's surge.

"I don't think stock and currency markets are in a state of turmoil," Japan's economy minister, Kaoru Yosano, said in an interview with Reuters.

"We would like to get psychological support from the G7," he said.

The triple disaster, unprecedented in a major developed economy, is already disrupting global manufacturing.

SUPPLY CHAIN

Makers of equipment for mobile telephones to carmakers and chipmakers have warned of a squeeze on their businesses given Japan's crucial role in many supply chains that keep global commerce ticking over.

The technology sector felt an immediate impact after Friday's quake and tsunami since Japan makes around a fifth of the world's semiconductors.

NAND flash memory chips, used in various electronic gadgets, soared 20 percent on Monday.

On Thursday, electronic conglomerate Toshiba Corp said an assembly line that makes LCD displays for smartphones and other devices will be shut for a month to repair machinery damaged by the quake.

The company's shares are already reeling on speculation its nuclear power business will suffer after governments globally have raised doubts about the industry's future.