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* MSCI's world index hits fresh peak, as do Dow, S&P 500
* 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 opening of U.S. markets, byline, dateline; previous LONDON)
By Herbert Lash
NEW YORK, July 3 (Reuters) - Global equity markets advanced on Thursday, setting record highs on a surge in U.S. jobs growth that provided a clear sign the American economy was bouncing back strongly from a dismal winter and lifted the dollar to two-week peaks against the yen.
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 in almost six years. Both indexes recorded new intraday highs.
MSCI's all-country world index, which covers about 85 percent of potential global stock investments, rose 0.22 percent to a record high. European shares climbed to within sight of multi-year highs.
Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York, called the Labor Department report "extremely bullish" as nonfarm payrolls increased by 288,000 jobs. U.S. employment has grown at above a 200,000-jobs pace for five straight months for the first time 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 was up 0.85 percent at 1,396.92.
The Dow Jones industrial average rose 65.47 points, or 0.39 percent, at 17,041.71. The Standard & Poor's 500 Index was up 6.64 points, or 0.34 percent, at 1,981.26. The Nasdaq Composite Index was up 16.76 points, or 0.38 percent, at 4,474.49.
U.S. stocks markets were slated to close early at 1 p.m. for the U.S. Independence Day holiday on Friday. 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 its low interest rate policy, citing persistent downside risks to the euro zone economy.
The dollar was up 0.4 percent against the yen at 102.18 yen, while the dollar index rose 0.3 percent to 80.225.
The euro traded 0.3 percent lower at $1.3612.
U.S. benchmark Treasuries yields hit two-month highs. The 10-year Treasury note fell 8/32 in price to yield 2.6575 percent, after earlier rising to 2.692 percent.
Gold slipped as the dollar extended early gains after the U.S. nonfarm payrolls report.
Gold futures for August delivery dropped 0.73 percent to $1,321.3 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, dropping 54 cents to $110.69 a barrel. U.S. oil fell 64 cents to $103.84 a barrel. (Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Dan Grebler)