(Adds oil, gold settlement prices, European market close)
* Equity markets rally as Yellen's remarks seen as dovish
* Bond yields tumble as Fed seen hiking once more this year
* Dollar, gold gain on Yellen's remarks
By Herbert Lash
NEW YORK, July 12 (Reuters) - Global equity markets rallied, with the Dow hitting a new high, the dollar gained and bond yields tumbled on Wednesday after Federal Reserve Chair Janet Yellen dampened growing expectations of more than one interest rate hike later this year.
In remarks to the House Committee on Financial Services, Yellen said the U.S. economy is strong enough to absorb further gradual rate increases and the slow wind-down of the Fed's massive bond portfolio.
The testimony depicted an economy that is growing, albeit slowly, and continues to add jobs as it benefits from steady household consumption and a recent jump in business investment.
Given current estimates, the federal funds rate "would not have to rise all that much further" to reach a neutral level that neither encourages nor discourages economic activity, Yellen said in her prepared testimony.
Equities rose on the view the Fed's monetary policy is not going to be as aggressive as some had anticipated, said Larry Hatheway, chief economist at asset management firm GAM.
"The Fed isn't really going to upset the apple cart," Hatheway said. "There's some softening here of what the Fed is going to do at least around rates. It doesn't necessarily answer the question around its balance sheet."
MSCI's gauge of stocks across the globe gained 1.01 percent while the pan-European FTSEurofirst 300 index of leading regional shares closed 1.61 percent higher at 1,514.59 and emerging market stocks rose 1.39 percent.
On Wall Street, the Dow Jones Industrial Average rose 146.04 points, or 0.68 percent, to 21,555.11, above a high set on July 3. The S&P 500 gained 19.88 points, or 0.82 percent, to 2,445.41 and the Nasdaq Composite added 68.93 points, or 1.11 percent, to 6,262.23.
Bond yields, which move in reverse of price, fell sharply.
The benchmark 10-year U.S. Treasury note yield fell to 2.302 percent, its lowest in two weeks, before paring some gains to trade at 2.3231.
At the front end of the curve, the two-year yield dropped as low as 1.331 percent from 1.379 percent on Tuesday and last traded at 1.3510 percent.
Germany's 10-year government bond yield fell to 0.511 percent.
The dollar, which fell against the euro soon after the release of Yellen's prepared remarks, reversed course and was trading near session highs against the common currency, as government bond yields in the euro area fell.
The dollar index rose 0.1 percent, with the euro down 0.43 percent to $1.1416. The Japanese yen strengthened 0.6 percent to trade at 113.24 per dollar.
Spot gold was up 0.23 percent at $1,220.09 an ounce.
U.S. gold futures for August delivery settled up $4.40 at $1,219.1 per ounce.
Oil futures pared gains despite a bigger-than-expected decline in U.S. crude stocks as the drawdown was not as big as reported by the American Petroleum Institute on Tuesday.
U.S. crude inventories fell 7.6 million barrels last week, the U.S. Energy Information Administration said, much more than the 2.9 million-barrel crude draw forecast but slightly less than the 8.1 million-barrel decline reported by the API.
U.S. crude rose 45 cents to settle at $45.49 per barrel and Brent settled up 22 cents at $47.74. (Reporting by Herbert Lash; Editing by Chizu Nomiyama and James Dalgleish)