GLOBAL MARKETS-Oil climbs on inventory data, boosts stocks

* World stock markets up with oil prices

* Fall in inventories lifts oil

* Gold (Other OTC: GDCWF - news) falls (Adds European shares closing, updates prices)

By Caroline Valetkevitch

NEW YORK, May 25 (Reuters) - Oil prices and energy shares rose on Wednesday after a sharper-than-expected fall in crude inventories, lifting world stock markets.

Growing bets on a possible Federal Reserve rate increase as early as in June or July reduced demand for U.S (Other OTC: UBGXF - news) . government debt while pushing the U.S. dollar up against the yen for a second day.

Investors' expectations for higher borrowing costs have risen since last week's minutes from the central bank's April meeting signaled a June increase was on the table. Comments from policymakers and upbeat U.S. economic data in recent days have supported those views.

"Investors have started to seriously contemplate the prospect of a hike at the start of the summer," said Luke Bartholomew, global macro investment manager at Aberdeen in London.

Energy Information Administration data showed U.S. crude stockpiles fell last week as imports dropped and refineries cut output. Brent oil was up 90 cents at $49.51, while U.S. crude was up 70 cents at $49.32.

Energy shares helped to boost global stock indexes, with shares of Chevron (Euronext: CHTEX.NX - news) up 1.5 percent at $101.74.

The Dow Jones industrial average was up 166 points, or 0.94 percent, to 17,872.05, the S&P 500 had gained 17.1 points, or 0.82 percent, to 2,093.16 and the Nasdaq Composite had added 42.42 points, or 0.87 percent, to 4,903.47.

MSCI (NYSE: MSCI - news) 's all-country world stock index rose 1 percent, while the pan-European FTSEurofirst 300 index of leading regional stocks ended up 1.3 percent.

A new debt deal for Greece seemed to have headed off the risk of another round of uncertainty over its finances and even its future in the euro zone after a funding crisis a year ago.

The U.S. dollar rose against the yen for a second straight day. The euro was last up slightly against the dollar after dipping slightly to match Tuesday's roughly 10-week low of $1.1129.

The dollar was last up 0.2 percent against the yen at 110.22 yen, off a session high of 110.45 yen.

U.S. Treasury prices dipped, with short and medium term yields hitting 10-week highs. Two-year yield and five-year yield reached 10-week highest at 0.938 percent and 1.424 percent, respectively.

Gold dropped to a seven-week low amid the Fed expectations. Spot gold was last down 0.3 percent at $1,222.55 an ounce, off an earlier low of $1,217.25.

(Additional reporting by Richard Leong, Sam Forgione and Saqib Ahmed in New York and Patrick Graham in London; Editing by Hugh Lawson (Other OTC: LWSOF - news) and Nick Zieminski)