* Political worries ease in Italy, Spain
* Trade frictions still undermining investor confidence
* Oil prices fall (Updates with late U.S. afternoon activity)
By Caroline Valetkevitch
NEW YORK, June 4 (Reuters) - World stock indexes and Treasury yields climbed on Monday, while the dollar fell to a two-week low as political tensions in Europe eased.
Italy's anti-establishment parties formed a coalition government on Friday to end three months of political deadlock.
Italian bond yields fell after soaring last week on fears a snap election would be called that might effectively become a referendum on euro membership.
The spread on Spanish bond yields over benchmark German Bunds also narrowed after a new prime minister was sworn in in Madrid, though Socialist Pedro Sanchez's minority administration faces a tough baptism from a revived independence drive in Catalonia.
U.S. Treasury yields rose as investors pared their safe-haven holdings of lower-risk government debt amid reduced anxiety about the political turmoil in Italy and Spain.
Benchmark 10-year notes last fell 12/32 in price to yield 2.9387 percent compared with 2.895 percent late on Friday.
The dollar index fell 0.17 percent to 94.04, with the euro up 0.3 percent to $1.1695.
"With European political drama retreating from the brink, the peak in the dollar index was likely observed at 95," said Mazen Issa, senior FX strategist, at TD Securities in New York.
Lingering trade disputes will also contribute to a challenging backdrop for the U.S. dollar in the weeks ahead, he added.
U.S. stocks rose on Monday led by gains in technology shares and helped by Friday's robust jobs data, which gave investors heightened confidence that the U.S. economy remained strong.
The technology sector boost added to continued investor optimism after Friday's better-than expected jobs data, according to Kim Forrest, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh.
"On Fridays in the summer, there's not a lot of people behind the desk. These are investors that may not have been around to participate at the end of a holiday week," said Forrest.
The Dow Jones Industrial Average rose 177.06 points, or 0.72 percent, to 24,812.27, the S&P 500 gained 12.22 points, or 0.45 percent, to 2,746.84 and the Nasdaq Composite added 47.76 points, or 0.63 percent, to 7,602.09.
MSCI's gauge of stocks across the globe gained 0.69 percent. European shares rose 0.22 percent.
While the risk of political crisis receded in Europe, concerns over a possible global trade war rumbled on in the background.
Finance ministers of the closest U.S. allies vented their anger on Saturday over Washington's imposition of metal import tariffs, setting the tone for a heated G7 summit in Quebec.
Canadian Prime Minister Justin Trudeau this week plays host to a summit of the Group of Seven leading industrialized nations with six of the seven members outraged at the United States over a slew of recent moves by President Trump.
Trudeau, who wants the June 8-9 meeting to focus on economic growth, insists he can handle the challenge, though insiders and analysts say he will have to fight to keep the grouping together at a time when Trump's trade and diplomatic moves have isolated the United States and risk undermining the G7's relevance.
Washington also remained at odds with Beijing after U.S. Commerce Secretary Wilbur Ross met Chinese Vice Premier Liu He. China warned the United States on Sunday that any bilateral agreements reached on trade and business would be void if Washington implemented tariffs and other trade measures.
But this did not stop Asian shares from rallying. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.48 percent higher, while Japan's Nikkei rose 1.37 percent.
Oil prices slid as investors kept selling on growing U.S. production, possible global supply growth and nagging trade tensions.
Benchmark Brent crude oil lost $1.50 to settle at $75.29 a barrel, while U.S. light crude fell $1.06 to settle at $64.75.
Additional reporting by Gertrude Chavez-Dreyfuss and Sinead Carew in New York; Kit Rees and Sujata Rao in London and Hideyuki Sano in Tokyo; Editing by Nick Zieminski and Chizu Nomiyama