GLOBAL MARKETS-Stocks zig-zag, dollar up on tax-cut deal

* U.S. bond yields extend surge on deficit worries

* Dollar rises, supported by tax-cuts euphoria

* Gold falls from fresh record peak, oil also down (Updates with U.S. markets' open, changes byline, dateline, previous: LONDON)

By Manuela Badawy

NEW YORK, Dec 8 (Reuters) - U.S. stocks wallowed on Wednesday and the dollar firmed as a spike in Treasury bond yields following a proposed extension of tax cuts raised growth expectations for the U.S. economy.

Oil and commodities prices eased from record highs, pressured by the dollar's rise, while U.S. government bond prices fell with benchmark yields hovering at their highest in six months after a deal to extend Bush-era tax-cuts stoked fears over inflation and the government's control of the budget deficit.

For the first time in weeks, investors shifted their attention from euro zone debt concerns onto U.S. economic fundamentals in a light volume market.

U.S. Treasury prices have fallen by 2 percent in two days after President Barack Obama proposed extending tax cuts aimed at supporting economic growth.

"Tax cuts are being perceived as positive for growth, positive for stocks, certainly outweighing the long-term negative impact on the U.S. fiscal deficit," said Michael Woolfolk, senior currency strategist, at BNY Mellon in New York. "The dollar is therefore benefiting."

Stocks opened slightly higher, but a rise in bond yields and the dollar limited gains.

The Dow Jones industrial average <.DJI> was up 8.78 points, or 0.08 percent, at 11,367.94. The Standard & Poor's 500 Index <.SPX> was up 1.59 points, or 0.13 percent, at 1,225.34. The Nasdaq Composite Index <.IXIC> was up 4.82 points, or 0.19 percent, at 2,603.31.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares rose to a fresh 26-month high at 1,125.38 points as financial stocks in Europe advanced.

Global stocks measured by MSCI All-Country World Index <.MIWD00000PUS> fell 0.3 percent.

DOLLAR AND BONDS

Higher government bond yields tend to support the dollar, as they reflect stronger growth and make some dollar-denominated assets more attractive to investors. The dollar was up against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.33 percent at 80.12.

The dollar strength pushed the euro towards important support levels around $1.3200 as the European bloc comes under pressure over high debt levels. The euro was down 0.21 percent at $1.3235. Against the Japanese yen, the dollar was up 0.75 percent at 84.11.

The continued sell-off of U.S. Treasuries raised worries about demand at a $21 billion sale of 10-year notes later this session and $13 billion reopening of a 30-year bond issue on Thursday.

The benchmark 10-year U.S. Treasury note was down 29/32, with the yield at 3.2493 percent. The 2-year U.S. Treasury note was down 6/32, with the yield at 0.6196 percent. The 30-year U.S. Treasury bond was down 14/32, with the yield at 4.4009 percent.

The Treasuries market suffered on Tuesday its worst one-day sell-off in 18 months.

The rise in U.S. borrowing costs gave the dollar an edge over the euro among yield-hungry investors, thereby also delivering a blow to gold, which has shed 2.5 percent since hitting a record high on Tuesday, as its investment appeal diminishes with a rise in interest rates.

Spot gold prices fell $25.84, or 1.84 percent, to $1375.50 an ounce, while U.S. light sweet crude oil fell 93 cents, or 1.05 percent, to $87.76 per barrel after industry data showed a rise in inventories.

(Additional reporting by Gertrude Chavez-Dreyfuss, Richard Leong in New York and Amanda Cooper in London, Editing by Chizu Nomiyama)