* U.S. stocks gain after budget talks held at White House
* World equity markets head for second weekly fall
* Brent crude above $108 a barrel on Middle East tension
* U.S. dollar extends gains versus yen, hits session high
By Herbert Lash
NEW YORK, Nov 16 (Reuters) - U.S. stock markets turned higher at midsession on Friday after legislators suggested tentative progress had been made in talks at the White House on avoiding tax hikes and spending cuts that would hurt the economy in 2013.
U.S. stocks recovered from losses after Senate and House leaders from both parties said in comments that they held "constructive" talks.
But shares on major markets were still headed toward a second consecutive weekly loss as the collective worry about the U.S. government's fiscal problems and weak global economic growth weighed on sentiment.
"This is the first time we've had one iota of anything constructive being done," said Todd Schoenberger, managing principal at the BlackBay Group in New York.
"That's very positive, but you can be flexible and still have us go over the cliff. Wall Street traders remain very nervous and need something concrete to get done," he said.
President Barack Obama met with top U.S. lawmakers on Friday to discuss avoiding the so-called "fiscal cliff." Investors have been concerned that if no deal were reached to modify automatic spending cuts and tax hikes, the U.S. economy could slip into recession. The S&P 500 has dropped 4.3 percent over the past two weeks, in part due to these worries.
Benchmark Brent crude oil prices rose toward $109 a barrel as a showdown between Israel and the Palestinians in Gaza stoked worries about supply. Investors were concerned that Arab producers may be drawn into any potential conflict, which could impact supply lines.
The Dow Jones industrial average was up 27.42 points, or 0.22 percent, at 12,569.80. The Standard & Poor's 500 Index was up 3.19 points, or 0.24 percent, at 1,356.52. The Nasdaq Composite Index was up 4.65 points, or 0.16 percent, at 2,841.58.
The MSCI world equity index was down 0.2 percent at 317.17, and has lost almost 2 percent this week.
FTSEurofirst 300 index of top companies shed 1.0 percent to 1,067.45, on course for its worst week since late September.
The Japanese yen steadied a bit after a two-day pummeling against the U.S. dollar but remained on track for its worst weekly loss since late June on expectations of aggressive monetary easing from the Bank of Japan.
"The basic driver is still the interest rate differential between the dollar and yen, which is very narrow, and we have to wait for what happens after the (Japanese) elections," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich.
The U.S. dollar was up 0.3 percent at 81.38 yen. The euro was down 0.5 percent against the dollar at $1.2704.
Brent crude rose 45 cents to $108.46 a barrel. U.S. oil gained 91 cents to $86.36.
U.S. Treasury debt prices rose slightly, with yields near two-month lows, on investor skepticism that budget talks aimed at preventing an automatic fiscal tightening will be immediately successful.
The benchmark 10-year U.S. Treasury note was up 3/32 in price to yield 1.58 percent.