* Investors appear unruffled by U.S. government shutdown
* World shares up slightly; U.S. Senate to vote on funding
* U.S. Treasury yields near 3-1/2-year high
* Dollar slips vs euro; oil rises
By David Randall
NEW YORK, Jan 22 (Reuters) - World stocks and U.S. bond markets largely shrugged off a government shutdown in Washington on Monday, although the dollar pulled back and wallowed near three-year lows as the euro resumed its strong start to the year.
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.
A plan put forward by a group of senators to extend government funding to Feb. 8 and work on resolving an immigration dispute has also helped ease concerns about a more serious deadlock.
“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.
In midday trading, the Dow Jones Industrial Average fell 13.6 points, or 0.05 percent, to 26,058.12, the S&P 500 gained 5.44 points, or 0.19 percent, to 2,815.74 and the Nasdaq Composite added 29.73 points, or 0.41 percent, to 7,366.11.
In a sign that the market was undeterred by the dispute in Washington, the benchmark U.S. 10-year Treasury yield on Monday reached close to its highest level in more than three years, an extension of the selloff in U.S. bonds since September.
The gain in U.S. shares follows 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 slightly.
“We’re not worried as we have been here before. Perhaps this is more fractious and may take longer to resolve, but it shouldn’t have a massive economic impact,” said Patrick O‘Donnell, investment manager at Aberdeen Asset Management.
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 climbed after Saudi Arabia commented that cooperation between oil producers who have cut production to boost prices would continue beyond 2018. U.S. crude rose 0.98 percent to $63.93 per barrel and Brent was last at $69.30, up 1.01 percent on the day.
Spot gold added 0.2 percent to $1,334.12 an ounce. U.S. gold futures gained 0.05 percent to $1,333.80 an ounce.
Reporting by David Randall; Editing by Nick Zieminski