The Federal Reserve on Friday poured cold water on speculation that a surprise hike to its emergency lending rate on Thursday signaled a change in monetary policy. Oil prices initially had fallen after the Fed raised its discount rate by a quarter percentage point to 0.75 percent.

On Friday, US crude for March delivery rose 67 cents to $79.73 a barrel by 12:01 p.m. EST (1701 GMT), after earlier falling by more than $1 to a low of $77.76 a barrel.

In London, ICE Brent crude for April rose 21 cents to $77.99 a barrel.

Support for prices came as workers at Total's French refineries continued their strike action, raising concern about fuel supplies in the coming days.

Oil investors have looked to wider economic data over the past year for signs of economic recovery and a potential rebound in energy demand.

Meanwhile, stocks and bonds edged higher worldwide on Friday.

The US dollar held broad gains that sent it to an eight-month high against a currency basket.

But on Friday the government reported that US consumer prices excluding food and energy fell for the first time since 1982, supporting the Fed's contention it could keep its benchmark interest rate low for an "extended period." For now, the report silenced critics claiming that government stimulus spending and huge deficits would result in faster inflation, unless controlled with interest rates.

"The short-term fear of rising interest rates and inflation has been put to bed," said Keith Springer, president of Capital Financial Advisory Services in Sacramento, California, who sees deflation as the bigger worry. "People have confidence in (Fed Chairman Ben) Bernanke." The Dow Jones Industrial Average rose 32.43 points, or 0.31 percent, to 10,425.33. The Standard & Poor's 500 Index increased 4.16 points, or 0.38 percent, to 1,110.91 and the Nasdaq Composite Index climbed 5.21 points, or 0.23 percent, to 2,246.92.

US stocks had initially dipped on Friday, but later rebounded as investors saw the Fed's rate move as a sign of strength in the economy.

"If the Fed thought it was necessary to raise interest rates to remove some of the accommodation, that should be taken as good news because it would suggest a recovering economy and a financial system that can withstand higher interest rates," said Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Paramus, New Jersey.

Industrial shares were among top gainers. Manufacturer United Technologies rose 1 percent to $68.77 and plane maker Boeing climbed 1.6 percent to $63.93.

European shares hit their highest close in three weeks as they rose for a fifth straight session. The FTSEurofirst 300 index rose 0.43 percent to 1,026.05, and European banks recovered some earlier losses.

The MSCI world equity index declined 0.17 percent, recovering from session lows but retreating from a two-week peak hit on Thursday.

The dollar gained against a basket of major currencies, with the US Dollar Index up 0.58 percent at 80.868.

Currency traders maintained the Fed's decision as a signal the US central bank was closer to tightening its benchmark rate, despite Fed assurances to the contrary. It could also be seen as Bernanke merely ending the easing of monetary policy, Capital Financial's Springer said.

"The markets are taking this as a clear step toward normalization in monetary policy," said Meg Browne, a currency strategist at Brown Brothers Harriman in New York.

"If you combine the Fed actions with the fundamentals of the US economy and contrast it with the situation in Europe, dollar buying is more than justified." The euro dipped 0.48 percent to $1.3548. Against the yen, the dollar gained 0.72 percent to 91.88.

The euro earlier fell to a nine-month low against the dollar, at around $1.3444, but trimmed losses after St. Louis Federal Reserve President James Bullard said market expectations for a rate hike this year were "overblown." Sterling fell to a nine-month low against the dollar at $1.5345.