GLOBAL MARKETS-Investors shrug off short U.S. government shutdown, dollar dips

* U.S. stocks jump after deal to end U.S. government shutdown

* World shares rise slightly

* U.S. Treasury yields near 3-1/2-year high

* Dollar slips vs euro; oil rises (Updates throughout)

By David Randall

NEW YORK, Jan 22 (Reuters) - U.S. stocks surged in Monday afternoon trading after senators in Washington reached a deal to reopen the federal government, ending a 2-1/2-day shutdown that world markets had largely taken in stride.

U.S. stocks jumped to new session highs after reports that the Senate had struck an agreement to keep the government open until Feb. 8.

In midday trading, the Dow Jones Industrial Average rose 66.8 points, or 0.2 percent, to 26,137.12, the S&P 500 gained 12.7 points, or 0.4 percent, to 2,823.00 and the Nasdaq Composite added 49.75 points, or 0.7 percent, to 7,383.34.

“It's almost a non-event at this point and would have to go on for at least a week before it would become an issue for the stock market,” said Tom Plumb, president of Madison, Wisconsin-based Plumb Funds.

U.S. Treasury yields, which have tended to fall during previous government shutdowns, rose as investors saw limited economic fallout from the political standoff and focused instead on a global economy motoring ahead and U.S. inflation pressures.

World markets had been unfazed by the shutdown in morning trading. The benchmark U.S. 10-year Treasury yield on Monday reached close to its highest in more than three years, an extension of the selloff in U.S. bonds since September.

The gain in U.S. shares followed broad gains in Europe, where markets focused on a flurry of mergers and acquisitions and upcoming corporate earnings reports. Progress towards an end to political deadlock in Germany helped the mood.

The pan-European STOXX 600 index was up 0.3 percent, with major indices rising in France and Germany. UK's FTSE was the main exception, dropping 0.2 percent.

The MSCI world equity index, which tracks shares in 47 countries, rose 0.4 percent.

DOLLAR NEAR THREE-YEAR LOW

The dollar remained stuck near three-year lows, continuing its weak start to the year. The dollar index fell 0.17 percent, with the euro up 0.25 percent to $1.225.

In European bond markets, Spain's borrowing costs dropped to a six-week low and the gap over its German peers fell to its tightest in almost three years after Fitch Ratings gave Spain its first "A" rating since the euro zone debt crisis.

Greece's short-dated yields also fell after S&P Global Ratings upgraded the country's credit ratings for the first time in two years.

Most other euro zone bond yields were little changed. Analysts said investors were probably moving to the sidelines before the European Central Bank's first meeting of 2018 this Thursday.

Oil prices dipped slightly, with U.S. crude down 0.08 percent to $63.26 per barrel and Brent at $68.68, up 0.1 percent.

Spot gold added 0.2 percent to $1,334.12 an ounce. U.S. gold futures gained 0.05 percent to $1,333.80.

(Reporting by David Randall; Editing by Nick Zieminski and James Dalgleish)