(Updates with midday U.S. trading.)
By David Randall
NEW YORK, Feb 12 (Reuters) - Signs that the United States and China might reach an agreement in trade talks and news of a tentative deal to avoid another government shutdown in Washington helped push world stock markets and bond yields broadly higher Tuesday.
Tokyo's Nikkei set the tone with a 2.6 percent rally, its best day of the year so far, while the Stoxx 600 index of European shares gained 0.5 percent.
On Wall Street, the Dow Jones Industrial Average rose 316.23 points, or 1.26 percent, to 25,369.34, the S&P 500 gained 30.84 points, or 1.14 percent, to 2,740.64 and the Nasdaq Composite added 90.91 points, or 1.24 percent, to 7,398.81 in midday trading.
MSCI's gauge of stocks across the globe gained 1.05 percent.
U.S. and Chinese officials expressed hopes that the new round of talks, which began in Beijing on Monday, would bring them closer to easing their nearly year-long trade war.
Beijing and Washington are trying to hammer out a deal before a March 1 deadline, without which U.S. tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.
"There will be no winner in a trade war. So at some point they will likely strike a deal," said Mutsumi Kagawa, chief global strategist at Rakuten Securities in Tokyo.
In Washington, U.S. lawmakers reached a tentative deal on border security funding, though aides cautioned that it did not contain the $5.7 billion President Donald Trump wants to build a wall on the Mexican border.
"What investors are taking from this is that the government stays open, whether or not Trump signs on the deal is secondary," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
The dollar, meanwhile, slipped slightly but hovered near a two-month high after notching its longest winning streak - eight days straight - in two years.
The dollar index fell 0.27 percent, with the euro up 0.38 percent to $1.1318.
The optimism that another government shutdown in the world's largest economy would be averted and trade tensions between the United States and China were easing helped push bond yields higher as investors traded out of safety plays.
Benchmark 10-year notes last fell 7/32 in price to yield 2.6859 percent, up from 2.661 percent late on Monday.
In commodity markets, oil prices jumped up as traders weighed support from OPEC-led supply restraint and a slowdown in the global economy. U.S. crude rose 2 percent to $53.49 per barrel and Brent gained 2. percent to $62.77. .
Reporting by David Randall; Editing by Nick Zieminski and Dan Grebler