Brent oil rose above $125 a barrel to end near a 10-month high on Friday as the United Nations' nuclear watchdog said Iran has sharply stepped up work on uranium enrichment, while the S&P 500 closed at the highest level since June 2008.

The sharp run higher in oil prices has increased worries that slower consumer demand will stymie global economic growth, particularly as the euro zone remains mired in a debt crisis and appears headed for recession.

A day after hitting a record high in euro terms, Brent crude jumped $1.85 to settle at $125.47, its fifth day of gains.

The news on Iran, in a report from the United Nation's International Atomic Energy Agency, was seen as certain to intensify concerns about Iran's atomic aims.

Brent's recent gains have been fueled mainly by worries over Iranian supply. European buyers of Iranian oil have cut back on purchases ahead of a European Union embargo effective July 1. Some of Iran's biggest customers in Asia including China have also reduced their buying.

The recent resurgence in the price of crude oil has led to speculation that, in a repeat of what happened at this time last year, a spike in energy prices could undermine real economic growth just when the recovery appears to be gathering momentum again, said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Despite oil's rise, the U.S. benchmark S&P 500 inched up to close at the highest since before the collapse of Lehman Brothers in 2008, continuing a pattern of steady gains on signs of U.S. economic recovery. World stocks gained as well.

The broad index is up more than 8 percent this year, a rally built on a succession of incremental gains and only a handful of losses, not one of them worse than a 0.7 percent drop.

Many analysts still expect a more significant pullback but a string of upbeat economic reports in recent weeks, including Friday's better-than-expected data on consumer confidence, has offset worries about an impending correction.

The Dow Jones industrial average <.DJI> dipped 1.74 points, or 0.01 percent, to end at 12,982.95. The Standard & Poor's 500 Index <.SPX> gained 2.28 points, or 0.17 percent, to 1,365.74. The Nasdaq Composite Index <.IXIC> rose 6.77 points, or 0.23 percent, to 2,963.75.

We're grinding higher, but it doesn't seem like there's a whole lot of conviction on either side, said Brian Lazorishak, portfolio manage at Chase Investment Counsel in Charlottesville, Virginia.

Global stocks as measured by MSCI <.MIWD00000PUS> were up 0.5 percent, while the FTSEurofirst 300 <.FTEU3> index of top European shares ended up 0.2 percent.

Energy shares were among those giving the biggest boost to stocks, with Chevron up 0.7 percent at $109.08 and giving the Dow its biggest boost. U.S.-listed shares of France's Total were up 0.6 percent at $56.46 in New York while Brazil's Petrobras
gained 1.6 percent at $30.08.

In Europe, results from companies including Telecom Italia also reassured investors. Telecom Italia rose 6.8 percent after the company posted increased earnings.

Rising energy costs supported the safe-haven appeal of U.S. government debt, and U.S. longer-dated issues put in their best weekly performance in four weeks.

On unusually light volume, benchmark 10-year Treasuries finished up 6/32 in price to yield 1.98 percent, down from 2 percent late Thursday.

EURO AT HIGHEST IN 2 MONTHS VS DLR

The euro rose to its highest in more than two months against the dollar. It was the third day of gains for the currency, which has been boosted by general optimism about the euro zone.

In late afternoon trading, the euro was last up 0.7 percent on the day at $1.34545, off an earlier peak of $1.34869, its highest since early December.

Market players said the euro rally had good momentum after it broke through the 100-day moving average around $1.3306 on Thursday, and took out a reported option barrier at $1.34 in early European trade on Friday.

Along with Brent, U.S. crude futures rallied. On the New York Mercantile Exchange, crude for April delivery settled at $109.77 a barrel, gaining $1.94, or 1.8 percent, the highest settlement since May 3, when prices ended at $111.05.

Breaking ranks with the euro, gold prices fell. Spot gold was down 0.5 percent at $1,771.36 an ounce.

(Reporting by Caroline Valetkevitch; Additional reporting by Robert Gibbons, Gene Ramos, Rodrigo Campos, Chris Reese and Gertrude Chavez-Drefuss in New York; and Fredrik Dahl in Vienna; Editing by James Dalgleish)