* Dow hits 21K for first time, dollar index hits seven-week high
* 2-year Treasury yields hit highest since December
* European stock markets climb, FTSE hits record high (Updates to late afternoon, adds commentary)
By Sinead Carew
NEW YORK, March 1 (Reuters) - U.S. Treasury yields rose along with the dollar and Wall Street rallied, lifting the Dow above 21,000, as investors bet on an interest rate hike and gave a sigh of relief after U.S. President Donald Trump's speech to Congress.
The three main U.S. stock indexes were on track for their best one-day gain since Nov. 7, one day before the U.S. presidential election, with the S&P 500 and Nasdaq also hitting record highs.
Financial stocks were the biggest boost for Wall Street after New York Fed President William Dudley - one of the most influential U.S. central bankers, and usually considered a dove - said late Tuesday that the case for tightening monetary policy had become "a lot more compelling", while San Francisco Fed President John Williams said he saw "no need to delay" raising rates.
"It's not necessarily the rate increase that matters. It's that they're seeing things improving. If the Fed feels more confident, maybe we should too," said Warren West, principal at Greentree Brokerage Services in Philadelphia.
Bank stocks helped the Dow Jones Industrial Average top 21,000 for the first time since banks' profits get a boost from higher interest rates.
The Dow Jones Industrial Average was up 342.98 points, or 1.65 percent, to 21,155.22, the S&P 500 gained 35.32 points, or 1.49 percent, to 2,398.96 and the Nasdaq Composite added 79.34 points, or 1.36 percent, to 5,904.78.
In his speech Tuesday, Trump pledged to deliver "massive" tax relief to the middle class and corporate tax cuts, to spend heavily on infrastructure and to ease regulations.
While some investors had hoped for specifics on how the administration would pay for its promises, investors who had kept money off the table ahead of the speech were relieved by a more measured than expected tone from the U.S. president.
"It's a rally on sentiment. The sentiment is that he's going to make big changes to tax and regulation and trade and he looked very presidential saying it. If one of those two things changes, the air is out of the rally," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.
U.S. Treasury yields rose broadly with 2-year yields hitting their highest in more than seven years on increased expectations for a Fed rate hike in March.
Having priced in only around a 35-percent chance that the Fed would move this month before the Fed comments, investors are now pricing in around a 66.4-percent probability of a March hike, according to CME Group's FedWatch tool.
Yields on the 2-year Treasury note rose to a high of 1.308 percent, the highest point since August 2009. Benchmark 10-year notes fell 25/32 in price to yield 2.45 percent. It earlier rose to 2.471, the highest since Feb. 16.
The dollar index, which measures the greenback against a basket of other major currencies, was up 0.5 percent and touched its highest level since Jan. 11.
The global MSCI ACWI index, rose about 1 percent and touched a record high.
In commodity markets, oil futures turned negative after U.S. crude inventories rose to a record high. U.S. crude fell 0.3 percent to $53.85 while Brent crude was off 0.3 percent at $56.34.
The stronger dollar weighed on gold, which dropped 0.14 percent to 1,246.62 an ounce, extending Tuesday's drop.
Gains in mining and bank stocks took Britain's blue-chip FTSE 100 index to an all-time high. It rose 1.6 percent, in line with the FTSEurofirst 300 index.
Additional reporting by Dion Rabouin and Karen Brettell in New York, Noel Randewich in San Francisco, Helen Reid, Jamie McGeever and Dhara Ranasinghe in London, and Nichola Saminather in Singapore; Editing by Nick Zieminski