* World shares gain 0.7 percent; S&P 500 closes at record high
* Euro firms against dollar on Italian government formation
* Both Fed and ECB hold policy meetings this week
* Oil, gold edge higher
By Caroline Valetkevitch
NEW YORK, April 29 (Reuters) - World stock indexes and the euro advanced on Monday as the formation of a new government in Italy eased uncertainty about the political future of the country, the third-largest economy in the euro zone, while the S&P 500 closed at a record high.
The gains on Friday extended the S&P 500's recent rally, bringing the index's increase for the year-to-date to 11.8 percent.
Expectations of more easy money from the U.S. Federal Reserve and the European Central Bank, which would offset the risk of future disappointment over global economic recovery, also boosted stocks.
Recent signs of weak U.S. growth have raised expectations the Fed will keep its pace of bond buying unchanged at $85 billion a month at its two-day policy meeting beginning on Tuesday, while the ECB is widely expected to announce an interest rate cut when it meets on Thursday.
"After the election there was a lot of uncertainty about whether Italy could form a government, so now there is not only a great deal of relief over that, but also expectations for additional monetary policies from the ECB," said Alec Young, global equity strategist at S&P Equity Research in New York.
Investors welcomed the formation of a broad coalition government in Italy under new Prime Minister Enrico Letta, two months after inconclusive general elections, though investors remain cautious over how long the new growth-focused government will survive.
The resolution of Italy's political stalemate helped bring its five- and 10-year borrowing costs down to their lowest level since October 2010 at a bond sale on Monday, while yields on 10-year debt in the secondary market fell 13 basis points to 3.93 percent.
MSCI (NYSE: MSCI - news) 's world equity index was up 0.7 percent, while the broad FTSE Eurofirst 300 index of top European shares closed up 0.5 percent, led higher by Milan's FTSE MIB (Milan: FTSEMIB.MI - news) , which rose 2.2 percent.
On Wall Street, the Dow Jones (DJI: ^DJI - news) industrial average was up 106.20 points, or 0.72 percent, at 14,818.75. The Standard & Poor's 500 Index was up 11.37 points, or 0.72 percent, at 1,593.61. The Nasdaq Composite Index was up 27.76 points, or 0.85 percent, at 3,307.02.
The S&P 500 surpassed its previous record close set earlier this month.
Housing data also helped U.S. stocks. Signed contracts to purchase previously owned U.S. homes rose in March as the housing market continued to pick up pace this year.
Growth-oriented stocks like energy and technology led the way higher. The Fed's stimulus measures have helped U.S. stocks rally for much of this year.
U.S. Treasury benchmark note yields held near four-month lows, with trading volumes light ahead of the central bank meetings and the U.S. Labor Department's highly anticipated monthly jobs report on Friday.
The 10-year Treasuries were flat in price to yield 1.67 percent. The yields have dropped from as high as 2.05 percent on March 8.
The euro was up 0.51 percent at $1.3093, with hedge funds cited among key buyers. It peaked at $1.3115, the highest since April 19.
Some analysts say the euro could weaken should the ECB cut its main interest rate by 25 basis points, from 0.75 percent currently, when it meets on Thursday; a rate cut would erode the euro's interest rate advantage over the dollar and yen.
"The euro would likely weaken somewhat on that, but the overall move will be muted," said John Doyle, currency strategist at Tempus Consulting in Washington, D.C. "The expectation is starting to get priced in."
A Reuters poll of 76 economists last Thursday showed only a narrow majority of 43 expected a 25-basis-point cut at this week's ECB policy meeting, which would take the bank's refinancing rate to a record low of 0.5 percent.
OIL, GOLD CLIMB
A weaker dollar helped drive gains in both U.S. crude oil prices and gold.
U.S. gold futures were up 0.8 percent to $1,465.30 an ounce.