* U.S. jobs data worst in a generation, but better than expectations
* Two-year U.S. bond yields hit record lows
* U.S.-China co-operation boosts sentiment
* London stock exchange closed for bank holiday
By Imani Moise and Herbert Lash
NEW YORK, May 8 (Reuters) - Equity markets rallied on Friday, hitting weekly highs, and oil prices gained as more governments around the world began gradually reopening their economies and Sino-American trade tensions eased.
The optimism contrasted with the economic data. U.S. unemployment numbers showed the coronavirus crisis cost the economy 20.5 million jobs in April, the steepest plunge in payrolls since the Great Depression.
Markets largely shrugged off the report after seeing U.S. jobs data came in better than expected.
"It's a historic, tragic day for the U.S. economy, but we're still seeing markets be near their session highs because expectations are that this is going to be short-lived," said Ed Moya, senior market analyst at OANDA.
In a sign of reduced skittishness among investors, the CBOE Market Volatility Index, Wall Street's so-called fear gauge, closed at 27.98, the first time below 30 since Feb. 26.
The Dow Jones Industrial Average rose 455.43 points, or 1.91%, to 24,331.32, the S&P 500 gained 48.61 points, or 1.69%, to 2,929.8 and the Nasdaq Composite added 141.66 points, or 1.58%, to 9,121.32.
MSCI's gauge of stocks across the globe gained 1.67%.
Still, some market watchers worried that the long-term impact will be worse than feared. By the raw numbers, the coronavirus crisis has left more Americans unemployed in one month than during the entire Great Depression, noted Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.
Equity markets have rebounded without a full picture of how many jobs will return and how much the economy will grow, said Marvin Loh, senior global macro strategist, State Street Global Markets.
“Valuations are still pretty aggressive. They assume we get back to where we were from an earnings perspective right away. That is something GDP is not necessarily showing,” he said.
The dollar turned negative against the euro during late trading. The dollar index fell 0.038%, with the euro up 0.02% to $1.0834.
"It is important not to underplay the scale of this shock to the U.S. economy ... especially since services makes up such a proportion of the U.S. economy," said Michael Hewson, chief market analyst at CMC Markets.
Top U.S. and Chinese trade representatives discussed their Phase 1 trade deal on Friday, with China saying they agreed to improve the atmosphere for its implementation and the United States saying both sides expected obligations to be met.
That calmed investors' fears about renewed trade tensions after U.S. President Donald Trump and other top officials blamed China for the spread of the coronavirus and threatened punitive action, including possible tariffs and shifting supply chains away from China.
"The threat of a breakdown in negotiations for now at least has been averted," said CIBC's Stretch.
Two-year U.S. Treasury yields hit record lows on Friday and fed fund futures implied the Federal Reserve could cut rates into negative territory this year, though officials have indicated they were not interested in setting negative rates.
The 2-year note last fell 1/32 in price to yield 0.1508%, from 0.129%.
Oil prices climbed as some countries moved ahead with plans to relax economic and social lockdowns imposed to halt the coronavirus pandemic, kindling market hopes for a boost in demand for crude and its products.
U.S. oil futures rose $1.19 to settle at $24.74 a barrel and Brent settled up $1.51 at $30.97.
Both contracts showed some easing from the morning's gains, but they were still heading for a second week of gains after the lows of April.
U.S. gold futures settled 0.7% lower at $1,713.90.
Reporting by Imani Moise; Editing by Dan Grebler, Nick Zieminski and Jonathan Oatis