GLOBAL MARKETS-Tax deal sends dollar higher, Wall Street set for strong day

* Dollar rises 0.4 percent vs currency index; bond yields rise

* US stock futures up to 0.9 percent higher; world stocks gain

* Sterling hits one-month high vs euro on Brexit deal hopes (Updates prices, adds quote on sterling)

By Sujata Rao

LONDON, Dec (Shanghai: 600875.SS - news) 4 (Reuters) - The dollar jumped on Monday versus the currencies of most other developed and emerging nations while Treasury yields rose and Wall Street was primed for a another record-setting day after the U.S. Senate voted to approve a wide-ranging tax overhaul.

The British pound was the other currency mover of the day, rising on expectations the United Kingdom would soon reach a deal on some of the terms of its planned exit from the European Union.

But markets reacted broadly to the Senate's approval on Saturday (Shenzhen: 002291.SZ - news) for the biggest tax law change since the 1980s, taking President Donald Trump closer to his goal of slashing levies on businesses.

European stocks rose more than one percent on average , with German stocks outperforming with a 1.4 percent surge, in anticipation of a strong New York session - futures for the Dow Jones, S&P 500 and Nasdaq (Frankfurt: 813516 - news) indexes rallied as much as 0.9 percent .

"With (Other OTC: WWTH - news) this tax deal, markets could pick up speed into the end of the year. It looks like the ingredients for a year-end rally are there," said Angelo Meda, head of equities at asset manager Banor SIM in Milan, predicting equity gains of 3 to 4 percent.

Tax cut hopes have been a significant tailwind this year for U.S. stocks, helping them hit successive record highs. A note from JPMorgan (LSE: JPIU.L - news) forecast that if the tax rate indeed fell to 20 percent from 35 percent, U.S. firms' earnings-per-share estimates could rise by about 8 percent in 2018.

The flip side is that the cuts will add to a $20 trillion U.S. debt pile and may increase the chances of more aggressive near-term rate rises in the world's largest economy.

Those expectations pushed the dollar up as much as 0.4 percent against a basket of currencies. Against the euro it firmed 0.3 percent, while rising as much as 0.8 percent to the Swiss franc .

Treasury yields rose too, indicating that bond markets are already anticipating the increase in debt. Two-year yields matched Friday's nine-year high while 10-year yields rose three basis points.

The U.S. Federal Reserve will almost certainly raise interest rates later this month, while markets are pricing roughly another two hikes in 2018. But many reckon the tax cuts will result in a more hawkish Fed.

"This environment should question whether the market is being too conservative in only pricing 50 basis points of (U.S. Federal Reserve) tightening next year," analysts at ING Bank told clients. "Loose fiscal and tight monetary policy should be sending the dollar firmer."

Others warn of risks ahead, especially that of a U.S. government "shutdown", should this Friday's deadline to authorise new borrowing pass without a deal.

World stocks rose 0.2 percent, staying off recent record highs, while emerging equities were up 0.6 percent .

EXIT EUROPE

The other main focus of the day was Britain's talks with the European Union. Prime Minister Theresa May was holding a crunch meeting with EU officials to break a deadlock and officials have expressed optimism that a deal on the main issues will be struck on Monday.

The pound firmed around 0.8 percent against the euro to a one-month high while against the dollar it rose almost half a percent.

Hopes of an agreement pushed sterling recently to six-month highs against its trading partners' currencies.

"To me, this is a Brexit breakthrough and it should be solid for the pound," said Neil Jones, Mizuho's head of hedge fund currency sales in London.

"I sense that we're moving towards a sign-off that will enable the UK to move into trade talks and that's only going to be a good thing for the pound."

Ten-year UK government bond yields however, were up around 6 basis points in sympathy with global bond market moves. European bond yields also rose by 3-5 bps, tracking Treasury moves and Ten-year German Bund yields were up around three basis points.

Emerging currencies were mostly weaker against the dollar, with Turkish markets hit by data showing inflation at almost 13 percent, the highest since 2003.

On commodities, Brent crude futures slipped 0.7 percent, pressured by signs of increasing supply from U.S. shale producers.

(Additional reporting by Swati Pandey in Sydney, Helen Reid and Saikat Chatterjee in London; editing by Mark Heinrich)