* U.S. dollar also boosted by U.S. GDP data
* U.S. stocks put in strongest week since March
(Updates with U.S. markets' closing levels)
By Saqib Iqbal Ahmed and Caroline Valetkevitch
NEW YORK, May 27 (Reuters) - The U.S. dollar index hit a
two-month high and U.S. bond prices fell on Friday after Federal
Reserve Chair Janet Yellen said a U.S. interest rate hike will
likely be appropriate in the coming months.
Although they briefly trimmed gains on Yellen's remarks,
U.S. stocks ended higher and the S&P 500 capped off its
strongest week since March. MSCI's all-country world stock index
.MIWD00000PUS had its best weekly performance since mid-April.
"It's appropriate... for the Fed to gradually and cautiously
increase our overnight interest rate over time, and probably in
the coming months such a move would be appropriate," Yellen told
an audience of Harvard University professors and
alumni.
Yellen's comments follow a chorus of policymakers who in
recent weeks have talked up expectations that an increase in
borrowing costs may be near.
"The market wasn't looking for anything from Yellen. It
ended up she said something that was a bit hawkish, especially
for her," said Thomas Roth, head of U.S. Treasury trading at
Mitsubishi UFJ Securities USA Inc.
Short-dated U.S. bond yields spiked after the comments. The
two-year yield US2YT=RR was up more than 4 basis points at
0.911 percent, while the five-year US5YT=RR gained 4 basis
points to 1.386 percent.
In the foreign exchange market, the dollar index .DXY rose
0.60 percent to 95.745, the highest level since March 29. It has
surged from a low of 91.919 on May 3.
The dollar gained earlier on Friday after U.S. economic
growth was revised upward for the first quarter.
While higher interest rates can hurt liquidity in stock
markets, many investors see a potential rate hike as a vote of
confidence in the U.S. economy.
The Dow Jones industrial average .DJI gained 44.93 points,
or 0.25 percent, to 17,873.22, the S&P 500 .SPX added 8.96
points, or 0.43 percent, to 2,099.06 and the Nasdaq Composite
.IXIC rose 31.74 points, or 0.65 percent, to 4,933.51.
For the week, the S&P 500 rose 2.3 percent and the Dow added
2.1 percent, the best weekly performance for both since March.
MSCI's all-country world stock index .MIWD00000PUS was
last up 0.3 percent on the day and 2.3 percent for the week. The
pan-European FTSEurofirst 300 index .FTEU3 of leading regional
stocks closed up 0.2 percent.
Trading volume was light in most markets ahead of public
holidays that will close London and New York markets on Monday.
Oil prices dipped for a second day in a row, with investors
taking profits after a surge to seven-month highs above $50 a
barrel this week.
Brent crude LCOc1 fell 27 cents to settle at $49.32. It
rose to $50.51 in the previous session, its highest since early
November. U.S. crude CLc1 dipped 15 cents to settle at $49.33.
It hit its October high of $50.21 on Thursday.
"People are worried crude production will come roaring back
at these prices," said Phil Flynn, energy markets analyst at the
Price Futures Group in Chicago.
Gold slid to an eight-week low amid the U.S. rate hike
speculation. Spot gold XAU= was down 0.3 percent at $1,215.39
an ounce.