* Equities up sharply on hopes from stimulus plans
* Wall Street set for positive start
* Dollar slides against euro but gains on yen
* Bond yields jump
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 8 (Reuters) - Equities surged around the world on Monday with investors taking heart from a likely rescue plan for U.S. automakers, a proposed U.S. jobs plan and more government stimulus measures to reverse economic decline.
Wall Street also looked set for a positive start.
The dollar fell against other major currencies apart from the yen while demand for government bonds dropped.
European shares jumped, led by banks and oils, tracking gains in the United States and Asia.
The FTSEurofirst 300 index of top European shares traded 5.3 percent higher. Earlier, Japan's Nikkeiclimbed 5.2 percent to its highest close in a week.
U.S. president-elect Barack Obama said on Saturday that his plan to create at least 2.5 million new jobs included the largest infrastructure investment since the 1950s and a huge effort to reduce U.S. government energy use.
Lawmakers in the U.S. Congress are also working on draft legislation to help out the embattled auto industry.
"The central banks have done their job and now the focus is on governments -- in addition to Obama's plan we have stimulus packages from India, Australia and China," said Thierry Lacraz, strategist at Pictet in Geneva. "While this will not avoid a recession, investors at least have the feeling that the people in charge are doing the right thing."
Global stocks as measured by MSCI were up around three percent. For the year to date, however, they remain down more than 46 percent.
HIGHER YIELDS
The dollar fell broadly, hitting its lowest against the euro and a basket of major currencies in more than a week as the steep rally in European shares indicated renewed risk appetite and boosted higher-yielding currencies.
The euro rose 1 percent to $1.2867 while the dollar index fell 1 percent.
However, the yen tumbled, hitting its lowest level against higher-yielding currencies including the Australian dollar, the euro and sterling in roughly a week due to the slight pullback in risk aversion which boosted European shares.
The dollar was up 0.4 percent to 93.24 yen, off its highs.
"Higher stocks are driving everything at the moment and currencies are trading in line with this, with higher yielders gaining and lower yielders on the defensive," said Adam Cole, global head of FX Strategy at RBC Capital Markets in London.
Euro zone government bond yields rose sharply.
The interest rate-sensitive two-year Schatz yield was up 14 basis points at 2.239 percent. The Schatz is also sensitive to gains by equities as the short-end of the yield curve is more liquid and a gateway for equity investors to return to the stock market.
The 10-year Bund yield was up 11 basis points at 3.14 percent, as the yield curve flattened. (Additional reporting by Sitaraman Shankar; editing by David Stamp/Victoria Main)