* Refinery outages, Yemen tensions and storm watch fuel gains
* Second-largest 2-day rally in U.S. crude in 25 years
* U.S. crude up 7 pct, extending Monday's 10 pct gain
* Brent up 5 pct, back above $50 a barrel (New throughout, updates prices and market activity to settlement)
By Barani Krishnan
NEW YORK, Aug 28 (Reuters) - U.S. crude rose 6 percent on Friday, notching its first weekly gain in two months, after a rally in gasoline from refinery outages and concerns about strife in Yemen fed a second frenzied day of short-covering in oil.
Market players also kept an eye on a storm that appeared to be approaching the oil-rich U.S. Gulf of Mexico.
U.S. crude gained nearly 17 percent over two sessions, ending eight straight weeks of losses. It was also the second largest two-day rise for the market in 25 years, Reuters data showed.
"A severely oversold and shorted oil market is creating a bid for covering in U.S. crude," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.
U.S. crude's front-month contract settled up $2.66, or 6.3 percent, at $45.22 a barrel. At its session high, it was up more than $3, or 7 percent at nearly $46. For the week, it rose 12 percent.
Brent, the global benchmark, closed up $2.49, or 5 percent, at $50.05 a barrel, after hitting a session peak at $50.98. It gained 10 percent on the week.
Gasoline prices rose about 5 percent after Phillips 66 unexpectedly shut down a 150,000-barrel-per-day fluid catalytic cracker at its 238,000 bpd refinery in Linden, New Jersey, due to a leak.
A chemical leak reported on Friday at PBF Energy Inc's 182,200-barrel-per-day refinery in Delaware City, Delaware, brought renewed focus to that plant also.
Adding to the refinery watch, industry monitor Genscape said Shell's 404,000 bpd crude distillation unit in Pernis, Rotterdam, was offline, a day after experiencing a brief shutdown. Europe's largest refinery had been flaring during the day, typically a sign of production issues or planned maintenance work.
Warplanes from a Saudi-led coalition killed 10 people in air raids over Yemen, local officials said.
Some analysts said U.S. crude also got a boost from concerns that Tropical Storm Erika was headed toward oil and gas installations in the U.S. Gulf.
A global glut of fuel and sluggish demand have cut oil prices in half from a year ago. Worries over China's economy have weighed on in recent weeks. Some analysts said the two-month slump of nearly 30 percent meant a rebound was due.
The rally on Thursday was fed by a stock market rise, strong U.S. growth data and a pipeline outage in Nigeria.
Some traders remained convinced the rally would fizzle and oil prices would head lower again.
Spreads between spot and one-year forward U.S. crude CLc1-CLc12 were little changed on Friday, suggesting little improvement in fundamentals of oil.
"This confirms that the spread market doesn't buy this rally," Tariq Zahir, an oil bear at Tyche Caspital Advisors in Laurel Hollow, New York, said.
The oil market shrugged off the weekly reading for the U.S. oil rig count which showed an addition of one rig this week. (Additional reporting by Christopher Johnson in London and Meeyoung Cho and Aaron Sheldrick in Seoul; Editing by Alden Bentley and David Gregorio)