* Wall Street gains, Cboe Volatility index falls
* European shares end up, snap seven-day losing streak
* Oil prices fall 2 pct after U.S. inventory data
* Dollar holds gains as Wall Street trades higher (Updates with European shares close, oil price settlement)
By Caroline Valetkevitch
NEW YORK, Feb 7 (Reuters) - The Dow and S&P 500 edged up in choppy trading on Wednesday afternoon, though energy shares dropped as oil prices fell 2 percent after U.S. data fanned fears of oversupply.
European shares closed up 2 percent, snapping a seven-day losing streak, while a world stock index was up slightly.
Equity market choppiness picked up in afternoon U.S. trading, though the Cboe Volatility Index, known as the VIX , the most widely followed barometer of expected near-term volatility for the S&P 500 index, eased after rising sharply earlier in the week.
On Tuesday, U.S. equities had roared back from Monday's selloff, when the Dow and S&P 500 saw their biggest one-day declines in two years.
"It takes a number of days for the market to find equilibrium and find a clear bottom," said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
A steep spike in yields last Friday sparked the initial Wall Street rout, forcing sales by a host of highly leveraged funds, which ramped up volatility and drove yet more selling.
On Wednesday, U.S. Treasury prices dropped after the Treasury Department sold new 10-year notes to soft demand and the U.S. Senate reached a budget deal.
Benchmark 10-year notes last fell 23/32 in price to yield 2.853 percent, from 2.766 percent late on Tuesday.
"Interest rates are still manageable. At this level, they don't provide competition for the equity market. We still have a long way to go before they're competitive to the equity market. This is something going to be watched very closely by investors in all asset classes," Krosby said.
The Dow Jones Industrial Average rose 172.25 points, or 0.69 percent, to 25,085.02, the S&P 500 gained 6.92 points, or 0.26 percent, to 2,702.06 and the Nasdaq Composite dropped 18.95 points, or 0.27 percent, to 7,096.93.
The pan-European FTSEurofirst 300 index rose 2.02 percent and MSCI's gauge of stocks across the globe gained 0.40 percent.
Emerging market stocks lost 0.32 percent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.44 percent lower.
In the energy market, oil prices fell 2 percent. U.S. crude fell 2.5 percent to settle at $61.79 per barrel and Brent dropped 2 percent to $65.51. U.S. data showed an unexpected build in refined products, fanning fears of oversupply headed into the slow-demand season.
Like many others, BlackRock analysts described the rout as a buying opportunity, seeing the leveraged products moves as essentially driven by jitters over recent equity gains on one hand, and the possibility of higher interest rates on the other.
Strategists also point out that the improving global economic outlook is a positive for stocks overall.
The U.S. dollar rose against most major currencies amid the gains on Wall Street.
The dollar index rose 0.76 percent, with the euro down 0.82 percent to $1.2275.
Gold slipped as the U.S. dollar strengthened. Spot gold dropped 0.9 percent at $1,313.67 per ounce.
Additional reporting by Karen Brettell in New York and Sujata Rao in London; Editing by Nick Zieminski and James Dalgleish