* Benchmark S&P 500 set for third week of gains
* Euro zone inflation in negative territory
* Bets on more ECB stimulus weigh on euro (Updates prices, adds comment)
By Rodrigo Campos
NEW YORK, Oct 16 (Reuters) - Stocks in major world markets rose to a two-month high on Friday and the dollar ticked up, boosted by views that the European Central Bank may provide more stimulus to the euro zone economy.
Oil prices rose nearly 2 percent as traders covered short positions after four days of sharp losses and the U.S. oil rig count fell for a seventh straight week.
On Wall Street, the benchmark S&P 500 index was on track for a third week of gains, a streak not seen since May. General Electric (N:GE) helped buoy the index for the day with a 1.3 percent gain after reporting results, but other industrials like Honeywell HON.N fell as did stocks in the energy sector.
"Right now, the trade is a risk relief rally, people buying back the risk they sold earlier in the month," said Paul Zemsky, chief investment officer, multi-asset strategies and solutions at Voya Investment Management in New York.
On earnings, Zemsky said "expectations have been depressed so far it seems almost certain we'll have a positive surprise."
The Dow Jones industrial average .DJI rose 32.01 points, or 0.19 percent, to 17,173.76, the S&P 500 .SPX gained 4.66 points, or 0.23 percent, to 2,028.52 and the Nasdaq Composite .IXIC added 2.17 points, or 0.04 percent, to 4,872.27.
The pan-European FTSEurofirst 300 index .FTEU3 closed up 0.7 percent. For the week, the index was little changed, after a 4.4 percent advance the preceding week.
An MSCI gauge of stocks in top world markets .MIWD00000PUS ticked up 0.3 percent, on track to close at its highest since mid-August.
EURO SOFT, YEN PARES GAINS
Annual inflation in the euro zone turned negative in September due to sharply lower energy prices, maintaining pressure on the ECB to increase its asset purchases to boost prices.
The euro EUR= fell 0.1 percent to $1.1370 and was little changed for the week.
"In the near term, the dollar could gain further against the euro as there's more speculation about more (quantitative easing) from the ECB," said Lee Ferridge, State Street Global Markets' head of macro strategy, North America, in Boston.
Against the yen JPY= , the greenback advanced 0.45 percent to buy 119.41, though it still remained the strongest week for the yen in the past six.
The dollar index .DXY , which values the greenback against a basket of six major counterparts, was up 0.2 percent.
Oil prices rose, with traders closing short positions after a sharp drop this week and with help of a further decline in the U.S. rig count.
The December contract for Brent, the new front month LCOc1 for the global crude benchmark, was up 1.5 percent from its Thursday settlement, trading above $50 a barrel. U.S. crude's front-month CLc1 was up 2.1 percent at $47.36 per barrel.
U.S. 30-year Treasury yields dipped on views the outlook for inflation appeared weak, while short-dated yields edged up.
Benchmark 10-year Treasury notes US10YT=RR were down 3/32 in price to yield 2.0316 percent, from 2.021 percent late Thursday.
London copper CMCU3 fell 0.4 percent and spot gold was down 0.2 percent.