World stocks rose toward this week's 7-1/2 month high on Friday as resource stocks rallied after oil prices surged past $69 a barrel and optimism grew about an improving U.S. labor market ahead of key jobs data.

Rio Tinto and BHP Billiton rose more than 9 percent after Rio scrapped a $19.5 billion tie-up with China's Chinalco, a move which would lighten its big debt burden, and announced an iron ore joint venture with BHP.

Thursday's data showing a drop in U.S. weekly jobless claims built expectations for a closely-watched monthly employment report due later and underpinned expectations that the world's biggest economy is improving.

We started off better today on a firmer Wall Street. Also, the news of BHP and Rio's link up has been a big positive, said David Morrison, strategist at GFT Global Markets in London.

We'll wait to see non-farms and how the United States takes them this afternoon. MSCI world equity index rose 0.4 percent, edging toward this week's October high.

The FTSEurofirst 300 index <.FTEU3> rose 0.7 percent. Emerging stocks <.MSCIEF> rose 0.85 percent.

U.S. crude oil rose 0.4 percent to $69.10 a barrel. The rise comes on top of a 4-percent gain on Thursday.

The June bund futures fell 11 ticks.

The dollar <.DXY> was steady against a basket of major currencies.

STERLING WOES

Sterling is the day's biggest underperformer, falling to a one-week low of $1.6017 after a political turmoil facing UK Prime Minister Gordon Brown intensified.

Against the euro, it fell 1 percent to a 2-week low of 88.66 pence.

Late on Wednesday another British minister resigned and called for the prime minister to stand down [ID:nL4488871], while early results in Thursday's local elections in the UK suggested a very poor showing for the ruling Labour Party.

The market is waking up to what a mess politics are in the UK and that is causing sterling to underperform, said Adam Cole, currency strategist at Royal Bank of Canada.

Traders also noted that news that UK mining company Rio Tinto is planning a $15.2 billion rights issue was also weighing on sterling.

(Additional reporting by Catherine Bosley; Editing by Andy Bruce)

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