* MSCI's world index, Dow, S&P 500 all hit record highs
* Dollar bounces on robust U.S. payrolls data
* Benchmark U.S. Treasuries' yield hit two-month highs
* Brent falls below $111, Libya says oil crisis is over (Adds oil, gold settlement prices, close of U.S. markets)
By Herbert Lash
NEW YORK, July 3 (Reuters) - The dollar rose and global equity markets advanced on Thursday, with stocks setting record highs on a surge in U.S. jobs growth that provided a clear sign the economic growth is faster than expected, perhaps as much as 4 percent in the second quarter.
The Dow industrials passed the 17,000 milestone and the benchmark S&P 500 rose to within 1 percent of piercing 2,000 after the U.S. unemployment rate fell to its lowest level in almost six years. Both indexes set record intraday and closing highs.
MSCI's all-country world index, which covers about 85 percent of potential global stock investments, rose 0.39 percent, also to a record high. European shares climbed to within 2 points of multi-year highs.
Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York, called the Labor Department report "extremely bullish." Nonfarm payrolls increased by 288,000 jobs in June and the unemployment rate fell to 6.1 percent. U.S. employment has grown at more than 200,000 jobs in each of the last five months, the first such string of growth since the late 1990s.
"You'll see the market continue to grind up, but not leap higher," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
"We're convinced that we'll see 2,100 on the S&P 500 by the end of the year but we're pushing up to 2,000 right now, so you don't have the huge valuation imbalance and that's why you're not going to see a huge jump here," Orlando said.
The pan-European FTSEurofirst 300 index closed up 0.95 percent at 1,398.24, just shy of the 6-1/2-year high of 1,399.62 reached in late June.
The Dow Jones industrial average closed up 92.02 points, or 0.54 percent, at 17,068.26. The S&P 500 gained 10.82 points, or 0.55 percent, to 1,985.44, and the Nasdaq Composite added 28.19 points, or 0.63 percent, to 4,485.925.
U.S. stock markets closed early, at 1 p.m., ahead of Friday's U.S. Independence Day holiday in thin trade. Bond and oil markets were to close at normal hours.
The euro dipped to one-week troughs versus the dollar as European Central Bank President Mario Draghi affirmed the ECB's low interest-rate policy, citing persistent downside risks to the euro zone economy.
The dollar rose 0.41 percent against the yen, at 102.19 yen, while the dollar index rose 0.32 percent to 80.209.
The euro traded 0.37 percent lower at $1.3608.
U.S. benchmark Treasuries yields hit two-month highs. The 10-year Treasury note fell 3/32 in price to yield 2.6411 percent, after earlier rising to 2.692 percent.
Gold slipped as the dollar extended early gains after the U.S. nonfarm payrolls report.
U.S. COMEX gold futures for August delivery settled down $10.30 at $1,320.60 an ounce,
Brent crude futures fell below $111 a barrel as supply fears began to ease after Libya declared an end to an oil crisis that has slashed exports from the member of the Organization of Petroleum Exporting Countries.
Brent fell to a three-week low as traders took profits, and settled down 24 cents at $111.00 a barrel. U.S. oil settled down 42 cents at $104.06 a barrel. (Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Dan Grebler and Leslie Adler)