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 close of U.S. markets)

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 fell sharply and stocks on Wall Street eased as volatility picked up.

Brazil's benchmark stock index jumped almost 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 Federal Reserve will hike interest rates by mid-2015, leading the dollar to notch its 12th straight week of gains, the longest weekly winning streak in more than 40 years.

But the dollar index dropped 1.1 percent on Monday to post its biggest fall by percentage since July 2013.

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.

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 has 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 0.38 percent, while the pan-European FTSEurofirst 300 index closed 0.22 percent higher at 1.350.16.

Stocks see-sawed on Wall Street, ending the session lower.

The Dow Jones industrial average fell 17.78 points, or 0.1 percent, to 16,991.91. The S&P 500 slid 3.08 points, or 0.16 percent, to 1,964.82 and the Nasdaq Composite lost 20.82 points, or 0.47 percent, to 4,454.80.

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 8/32 in price to yield 2.4160 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 1.06 percent at 85.778.

Against the yen, the greenback was down 0.86 percent at 108.81 yen. Against the euro, the dollar slipped 1.05 percent to $1.2647.

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 and Meredith Mazzilli)