GLOBAL MARKETS-Stocks extend rally on U.S. jobs data; dollar falls

* Friday's jobs report bolsters confidence, but volatility rises

* Treasuries rise as investors see glean of weak jobs data

* Brazilian stocks soar on pro-business candidate's prospects (Adds oil settlement prices)

By Herbert Lash

NEW YORK, Oct 6 (Reuters) - Global equity markets extended a rally on Monday that drew strength from a U.S. jobs report last week that bolstered confidence in the American economy, but the dollar retreated and stocks on Wall Street eased as volatility picked up.

Brazil's benchmark stock index jumped 5 percent after a pro-business candidate surged to a strong finish in Sunday's presidential election, setting the stage for a likely tight run-off with leftist President Dilma Rousseff.

Friday's U.S. non-farm payrolls report fueled speculation that the Fed will hike interest rates by mid-2015 and helped the dollar notch its 12th straight week of gains. The dollar index slipped on Monday but still traded near four-year highs, up 12 straight weeks since early July, the longest streak in over 40 years.

Treasury prices rose and gold climbed 1.4 percent for its biggest one-day gain in two months as the dollar's sharp fall sparked fresh physical demand and short-covering after bullion hit a 15-month low.

U.S. COMEX gold futures settled up $14.40 at $1,207.30 an ounce in heavy trading.

"Volatility has picked up some. You have people who got in at a lower cost last week and took advantage of the up move to get out and it's left some investors questioning whether that rally is here to stay," Rick Meckler, president of hedge fund LibertyView Capital Management in Jersey City, New Jersey, said of the day's equities moves.

But he added: "We'll see it go back and forth all day."

The CBOE Volatility index rose 1.72 points from trough to peak, almost double its average of 1.06 points over the past 250 sessions. The VIX surpassed the year-long average in nine of the past 10 sessions.

MSCI (NYSE: MSCI - news) 's all-country world index of equity performance in 45 countries rose 0.54 percent, while the pan-European FTSEurofirst 300 index closed 0.22 percent higher at 1.350.16.

On Wall Street, the Dow Jones industrial average was down 20.10 points, or 0.12 percent, at 16,989.59. The Standard & Poor's 500 Index was down 2.90 points, or 0.15 percent, at 1,965.00. The Nasdaq Composite Index was down 17.19 points, or 0.38 percent, at 4,458.43.

Euro zone bond yields fell after data showed German industrial orders dropped at their fastest rate since 2009 in August, reviving expectations of further monetary easing.

German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 3 basis points to 0.91 percent - just 4 bps away from record lows.

U.S. Treasuries yields edged lower on the weak European economic data and the notion that modest growth in U.S. hourly earnings could delay the Fed from raising U.S. interest rates.

The 10-year U.S. Treasury note rose 7/32 in price to yield 2.4196 percent.

The dollar's rally took a breather on profit-taking.

The dollar index, which tracks the greenback against six major currencies, was last down 0.88 percent at 85.928.

Against the yen, the greenback was down 0.68 percent at 109.00 yen. Against the euro, the dollar slipped 0.84 percent to $1.2621.

Oil rebounded after Brent crude dropped below $92 a barrel.

Brent for November rose 48 cents to settle at $92.79 a barrel. U.S. November crude settled 60 cents higher at $90.34 a barrel.

(Reporting by Herbert Lash; Additional reporting by Emelia Sithole-Matarise in London; Editing by Dan Grebler)