GLOBAL MARKETS-Bond yields eye biggest weekly rise in 10 years
* Wall Street ends mostly higher after volatile session
* 10-year Treasuries yields rise above 2.50 percent
* Dollar continues gains against euro, yen
* Crude drops, gold bounces back
By Leah Schnurr
NEW YORK, June 21 (Reuters) - U.S. equities stabilized in choppy trading on Friday, while Treasury yields were on track for their biggest weekly jump in a decade as investors reassessed their positions in the wake of the Federal Reserve's plans to withdraw its economic stimulus.
Markets are adjusting to the Fed's plan laid out earlier in the week for the central bank to scale back its asset purchases later this year if the U.S. economy keeps improving as expected.
Chairman Ben Bernanke roiled world markets when he outlined the timeline for the plan on Wednesday, with interest rates rising and equities markets selling off.
Easing fears about an immediate banking crisis in China helped make for a calmer tone, but short-term funding rates there remain elevated, especially for smaller lenders.
After a choppy session, U.S. stocks ended higher following a two-day selloff. Ten-year Treasuries yields rose above 2.50 percent, their highest intraday level since August 2011.
For the week, the 10-year yield was on track to rise 40 basis points for the biggest single-week jump since the March 2003, according to Reuters data. The dollar rose and was headed for its biggest weekly gain since July 2012.
"It's all one big unwind. That's been a negative for Treasuries as hedges are unwound," said Sean Murphy, a Treasuries trader at Societe Generale in New York.
Major U.S. stock indexes racked up their worst week since April. The benchmark S&P 500 remained below its 50-day moving average, after breaking below it on Thursday.
"A lot of investors thought the sell-off was overdone after we broke through those technical levels, but all the existential things that drove us down are still in place," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.
"People aren't sure what's going to happen with Fed policy or rates or anything else. It is too soon to say we hit a bottom."
MSCI's broad world stock index, which tracks shares in 45 countries, was off 0.3 percent, and Europe's broad FTSE Eurofirst 300 index ended down 1 percent.
The Dow Jones industrial average added 41.08 points, or 0.28 percent, to 14,799.40. The Standard & Poor's 500 Index rose 4.24 points, or 0.27 percent, to 1,592.43. The Nasdaq Composite Index was off 7.39 points, or 0.22 percent, to 3,357.25.
The Fed is currently buying $85 billion a month in bonds, part of its huge stimulus effort that has driven many investors to embrace riskier assets and has sent U.S. stocks up about 15 percent for the year. Investors now face the task of unwinding those trades, which is expected to continue to roil global markets across asset classes.
The recovery in stocks in the afternoon coincided with a Wall Street Journal article suggesting markets were "misreading" the Fed.
Benchmark 10-year Treasury notes were down more than a point in price to yield 2.54 percent, while 30-year bonds dropped 1-9/32 in price to yield 3.59 percent.
The dollar continued to climb as Bernanke's view that the U.S. economy is improving prompted traders to start pricing in a rise in interest rates in late 2014.
"Players will likely park (assets) in the dollar until we have got a little more clarity about where the world is going," said Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank in London. "The dollar is benefiting from that and I sense it will continue to do so."
The dollar rose 0.5 percent against a basket of currencies , putting it on track for a weekly gain of 2 percent, the biggest since early July, 2012. Trading volume was slowing with under an hour to go in the New York session which ends the global day.
The euro fell 0.7 percent to $1.3126 and the dollar gained 0.4 percent against the yen to 97.70 yen.
There was little respite across the emerging markets, with MSCI's benchmark index down 0.8 percent.
As the Fed's policy tapering gradually pushes U.S. Treasury yields higher, the attractiveness of returns in developing countries like Turkey and South Africa has waned.
The emerging markets index has fallen close to 5.5 percent this week, making for a year-to-date loss of more than 14 percent, and many in the market see further falls ahead.
Gold drew some demand from investors attracted by the week's big equity and bond price falls, although worries about China's sluggish growth outlook weighed on sentiment.
Spot gold recovered from a three-year trough and was up 1.2 percent at $1,293.65 an ounce, while gold futures added 0.6 percent to $1,293.40 an ounce.
Worries about demand from China and the U.S. weighed on oil. Brent crude lost $1.24 to $100.91, while U.S. oil dropped $1.45 to $93.69.
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