* World equity markets head for second weekly fall
* U.S. stocks slide as budget talks held at White House
* Brent crude above $108 a barrel on Middle East tension
* Dollar extends gains versus yen, hits session high
By Herbert Lash
NEW YORK, Nov 16 (Reuters) - World shares headed toward a second consecutive weekly loss on Friday as U.S. government fiscal problems and weak global economic growth weighed on sentiment, while violence in the Middle East pushed up oil prices despite ample stockpiles and a weak outlook for demand.
U.S. stocks briefly rebounded after the open on a report that White House officials were in advanced talks to replace sweeping spending cuts with targeted cuts and tax increases in a move to avoid the so-called "fiscal cliff" in early 2013.
"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, but the hour-long session was not expected to yield much in the way of tangible results, although it could create a template for the coming weeks of negotiations.
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.
The drop on Wall Street followed falling equity markets in Europe, where persistent worries about the euro zone's ability to deal with its debt problems are depressing investors.
The Dow Jones industrial average was down 6.92 points, or 0.06 percent, at 12,535.46. The Standard & Poor's 500 Index was down 2.09 points, or 0.15 percent, at 1,351.24. The Nasdaq Composite Index was down 9.46 points, or 0.33 percent, at 2,827.48.
The MSCI world equity index was down 0.4 percent at 316.39, and has lost almost 2 percent this week.
FTSEurofirst 300 index of top companies shed 1.0 percent to 1,068.34, 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 0.22 percent at 81.32 yen. The euro was down 0.58 percent against the dollar at $1.2704.
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.
Brent crude rose 33 cents to $108.34 a barrel. U.S. oil gained $1.20 to $86.65.
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 7/32 in price to yield 1.5707 percent.