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(Corrects analyst's affiliation in paragraph 5, updates paragraph 7 to show final figures for the U.S. stock indexes)
* U.S. first-quarter GDP revised to show contraction but prospects brighter
* S&P ends at third record high in four sessions despite weak GDP
* U.S. bond yields rebound from 11-month lows
By Angela Moon
NEW YORK, May 29 (Reuters) - Global equity markets hit an all-time high on Thursday, boosted by the U.S. S&P 500 which scored its third record closing high in four sessions as investors shrugged off data that showed the U.S. economy contracted in the first quarter.
U.S. benchmark Treasury yields, which fell to 11-month lows earlier, erased losses while the dollar finished down against other major currencies.
On Wall Street, a flurry of merger and acquisition activity in food and technology sectors as well as bets on improvement in the second quarter boosted investors' appetite for risky assets, sending the S&P 500 to yet another record high.
Data showed the downgrade in business activity that resulted in first-quarter gross domestic product falling 1 percent stemmed largely from a drop in inventories. While this was steeper than forecast, it was not severe enough to change the outlook for a sizable recovery in the second quarter.
"Once you get beyond the headline number and look under the hood, things don't really look so bad," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. "Inventories were to blame for a lot of it and that bodes well for the future."
The MSCI World Index, up 1.4 percent since the last ECB policy meeting, gained 0.4 percent to a new record high.
Wall Street's Dow Jones industrial average rose 65.56 points or 0.39 percent, to end at 16,698.74. The S&P 500 gained 10.25 points or 0.54 percent, to finish at 1,920.03. The Nasdaq Composite added 22.87 points or 0.54 percent, to close at 4,247.95.
European shares held near multi-year highs, with the pan-European FTSEurofirst 300 index closing up 0.1 percent at 1,379.05, within a whisker of a near six-year high of 1,380.52 reached this week.
The U.S. dollar index, composed of six currency pairs, was off 0.08 percent after being down 0.17 percent ahead of the GDP report, which was issued simultaneously with Labor Department data showing fewer claims for unemployment benefits.
The yield on the 30-year bond was 3.328 percent after earlier hitting 3.278 percent, an 11-1/2-month low.
Gold prices eased but bounced off their lowest level in nearly four months. Spot gold was down 0.2 percent to $1,255.29 after falling as low as $1,251.10 an ounce, its lowest since Feb. 4.
Oil rose on signs of stronger demand from top oil consumer the United States. U.S. crude oil settled 86 cents higher at $103.58 a barrel and Brent crude settled 16 cents higher at $109.97 a barrel. (Reporting by Angela Moon; Editing by Dan Grebler and Chizu Nomiyama)