* U.S. sentiment at 5-yr high; European shares pare losses
* Euro hits 2-month low vs dollar
* Gold firms, set for biggest weekly gain since January
By Herbert Lash
NEW YORK, Nov 9 (Reuters) - U.S. stocks and oil prices rebounded on Friday on news U.S. consumer sentiment rose in November to a more than five-year high, offsetting fears a looming "fiscal cliff" in the United States and Europe's troubled finances and weak economies may tip the world into recession.
Still, world shares were set for their worst weekly performance since June, depressed by Europe's debt troubles and some $600 billion in automatic tax hikes and spending cuts to start in January if the U.S. Congress fails to act on a budget compromise.
The surprisingly strong survey showing American consumers felt more optimistic about employment prospects and the outlook for the economy eased the gloom from Europe and led U.S. stock prices and crude oil to turn higher in early trading.
"Clearly taxes are going up and that is something the market doesn't like, there is concern the economy continues to weaken, and there is not much left in the tank in terms of making corporate profitability better," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
"It's only natural we get a bounce today, but I don't know that we are out of the woods yet," he said.
The Dow Jones industrial average was up 41.89 points, or 0.33 percent, at 12,853.21. The Standard & Poor's 500 Index was up 8.10 points, or 0.59 percent, at 1,385.61. The Nasdaq Composite Index was up 21.28 points, or 0.73 percent, at 2,916.87.
European shares pared losses to trade flat on the U.S. data, which included a government report that wholesale inventories rose in September by the most in nine months as wholesalers sharply boosted stocks of farm goods and oil. Inventories are a key element in the government's measure of economic growth.
The FTSE Eurofirst 300 index of top European shares closed down 0.05 percent at 1,097.18 after trading higher briefly before the market's close.
Falling industrial output in France, Italy and Sweden and a warning from a German ministry that the country's economy - Europe's largest - was expected to slow further in the fourth quarter and the first three months of 2013 rattled investors.
Also weighing on investors was news that euro zone finance ministers are unlikely to release a new tranche of loans to Greece on Monday because there is no agreement on how to make its debt sustainable.
"It's the core Europe now, not just the peripheral Europe, that may be sliding into a recession," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York. "If that happens, then China will lose its export market and the whole global economy will begin to contract."
"The market is very afraid that Europe could drag the whole global economy down."
Oil pushed higher in choppy trading, lifted by the improved U.S. consumer sentiment and Chinese data indicating a strengthening economy that countered pressure from concerns over Europe's debt problems and the looming U.S. fiscal cliff.
U.S. crude futures rose $1.30 at $86.39 a barrel, while Brent futures gained $2.00 to $109.25 a barrel .
The euro dropped to a two-month low against the U.S. dollar and could extend losses as fears mount that the euro zone's debt crisis and deteriorating economic conditions could drag on global economic growth.
The euro was down 0.18 percent at $1.2724 and was seen vulnerable to further losses. The dollar index rose 0.2 percent to 80.974.
The MSCI world equity index was up 0.3 percent at 324.55. It has lost more than 2 percent since Monday and looked set to close on Friday with a weekly decline that would be the steepest since June.
Gold hit a three-week high of $1,738.66 an ounce before pulling back slightly. Spot gold prices rose $2.67 to $1,732.60.
Prices of safe-haven U.S. Treasuries extended gains for the week after Tuesday's U.S. election raised fears that Washington's politicians may struggle to find a compromise to cut the budget deficit before nearly $600 billion of spending cuts and tax increases kick in early in 2013.
Markets are also watching the U.S. debt ceiling, which must be raised to avoid a government shutdown.
The benchmark U.S. Treasury 10-year note fell 6/32 in price to yield 1.6369 percent. ]