By Ellen Freilich

NEW YORK (Reuters) - The prospect of a U.S. interest rate cut next week to spur a slowing economy lifted world stock markets on Friday, dragged the dollar to record lows and put some downward pressure on U.S. Treasury prices.

U.S. stocks jumped, briefly driving the Nasdaq up 2 percent and the S&P 500 up 1 percent, after lender Countrywide Financial Corp. CFC.N said it expects to return to profitability this quarter, easing some fears about financial sector losses.

Meanwhile, the price of oil hit an all-time high on heightened tension between the United States and Iran, worries over energy supply shortages ahead of the northern hemisphere winter and unrest in Nigeria.

U.S. crude for December jumped to $92.22 a barrel before easing a bit. Crude oil prices have risen about 50 percent this year.

The Dow Jones industrial average .DJI was up 65 points, or 0.5 percent, at 13,740.20. The Standard & Poor's 500 Index .SPX was up 12 points, or 0.8 percent, at 1,526.21. The Nasdaq Composite Index .IXIC was up 40 points, or 1.46 percent, at 2,791.

Microsoft Corp. (MSFT.O: Quote, Profile, Research), which raised its profit outlook late Thursday, gave the Nasdaq its biggest boost. Its shares rose 10.7 percent to $35.42, a day after it lifted full-year forecasts and posted quarterly profit that beat analysts' expectations.

Countrywide's stock shot up 15 percent to $15.04. The largest U.S. mortgage lender, it said the housing slump led to a $1.2 billion (585 million pound) third-quarter loss, but it expects to report a profit this quarter as it slashes jobs and stabilizes its operations.

Shares of Merrill Lynch & Co. Inc. MER.N jumped 5 percent to $63.94 after CNBC television reported its chief executive, Stan O'Neal, has told friends he expects to be ousted. On Wednesday, Merrill reported making huge write-downs for bad investments related to risky subprime mortgages.