GLOBAL MARKETS-Equity rally continues as crude prices rise on deal hope

* U.S (Other OTC: UBGXF - news) . stocks up for third straight session

* Brent crude jumps 7.2 pct, U.S. crude up 5.6 pct

* Fed policymakers discussed changing rate path -minutes

* Yen and U.S. Treasuries soften

* Peso firms after Mexican central bank raises rate (Adds close of U.S. markets, Fed minutes)

By Chuck Mikolajczak

NEW YORK, Feb 17 (Reuters) - Global equity markets rallied on Wednesday, as oil prices jumped on optimism that top crude producers could finalize a deal to freeze production, while the Mexican peso strengthened after the country's central bank hiked its benchmark interest rate.

After a surprise agreement on Tuesday between non-OPEC Russia and OPEC leader Saudi Arabia to freeze output at January levels, Iran's oil minister on Wednesday met counterparts from Venezuela, Iraq and Qatar, saying the proposed production "ceiling" should be the first step toward stabilizing the market.

Brent settled up 7.2 percent at $34.50 and U.S. crude was up 5.6 percent at $30.66 a barrel.

Energy and materials shares led Wall Street higher, rising 2.9 percent and 2 percent, respectively. Nine of the 10 major S&P sectors were in positive territory.

"Oil continues to directionally trade with equities and oil prices are higher, and more important, economic data recently has been better than feared," said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City.

"Meanwhile, the backdrop for equities is oversold. ... This has certainly compelled some folks who are under-invested to get back into the stock market," he said.

The Dow Jones industrial average rose 255.37 points, or 1.58 percent, to 16,451.78, the S&P 500 gained 31.02 points, or 1.64 percent, to 1,926.6 and the Nasdaq Composite added 98.11 points, or 2.21 percent, to 4,534.07.

The S&P 500 has climbed for three straight sessions, its longest streak of the year, after closing at a two-year low on Thursday. The 5.3 percent gain marks the best three-day performance for the index since August.

The Mexican peso firmed 2.8 percent against the dollar after Mexico's central bank unexpectedly raised its benchmark interest rate by 50 basis points to 3.75 percent and intervened directly in the foreign exchange market to sell dollars as part of an aggressive new program in a major policy shift to support the peso.

Economic data showed U.S. housing starts unexpectedly fell in January but producer prices rose last month, with signs of an uptick in underlying inflation, which is closely watched for signs of when the Fed will raise rates.

In other data, industrial production in January rose by the most in 14 months, its first increase in five months, the latest sign the economy regained some ground early in the year.

Federal Reserve policymakers worried last month that tighter global financial conditions could hit the U.S. economy and considered changing their planned path of interest rate hikes in 2016, according to the minutes of the central bank's January policy meeting.

In Europe, banks and resource stocks helped fuel a rally, led by French bank Credit Agricole (Swiss: ACA.SW - news) and UK-listed miner Glencore (Xetra: A1JAGV - news) .

The pan-European FTSEurofirst 300 index of leading shares closed up 2.7 percent, bringing its gains for this week to over 5 percent and putting it on track for its best week in over five years.

Financials in Europe were up 3.3 percent and basic resources stocks surged 8.1 percent.

MSCI (NYSE: MSCI - news) 's index of world shares was up 1.53 percent, extending Tuesday's rise of 2.3 percent, its second-biggest gain in four years.

The dollar fell 0.17 percent against the yen, to 113.85 yen, while the benchmark 10-year U.S. Treasury was down 9/32 in price to yield 1.8086 percent .

(Additonal reporting by Lewis Krauskopf; Editing by Leslie Adler)