* 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 after U.S. market open, changes byline, previous dateline LONDON)
By Sinead Carew
NEW YORK, March 1 (Reuters) - Wall Street indexes rallied on Wednesday, with the Dow hitting a record above 21,000 points, while the dollar and U.S. Treasury yields jumped as investors bet that a U.S. interest rate hike would come soon.
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.
The comments overshadowed U.S. President Donald Trump's Tuesday night speech to Congress and sent U.S. financial stocks soaring, helping the Dow Jones Industrial Average top 21,000 for the first time as banks' profits get a boost from higher interest rates.
“Williams and Dudley are very strongly signaling that fact that March is a live meeting, and that’s occurring against the backdrop of consistently strong (economic) numbers,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corporation in New York.
At 10:29 a.m. ET, the Dow was up 254.45 points, or 1.22 percent, to 21,066.69, the S&P 500 had gained 25.3 points, or 1.07 percent, to 2,388.94 and the Nasdaq Composite had added 57.20 points, or 0.98 percent, to 5,882.64.
Gains in mining and bank stocks also took Britain's blue-chip FTSE 100 index to an all-time high. It last traded up 1.5 percent, in line with a rise in the FTSEurofirst 300 index.
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, climbed 0.7 percent and touched its highest level since Jan. 11.
French stocks were boosted after controversial right-wing French presidential candidate Francois Fillon, vowed to stay in the race. The decision could strengthen the favorite candidate - centrist Emmanuel Macron - who, polls show, would beat far-right anti-EU leader Marine Le Pen.
The decision helped French stocks, already doing well after strong earnings reports, climb 2 percent.
The global MSCI ACWI index, was up 0.6 percent, erasing the previous three days' losses.
In his speech Tuesday, Trump pledged to overhaul the immigration system, improve jobs and wages and deliver "massive" tax relief to the middle class and tax cuts for companies, but offered few clues on how this would be achieved.
In commodity markets, oil prices edged up as investors took heart from strict OPEC compliance with its pledge to cut output, though evidence of increasing U.S. production capped gains.
The stronger dollar weighed on gold, which dropped 0.6 percent to 1,240.99 an ounce, extending Tuesday's drop.
Additional reporting by Karen Brettell in New York, Helen Reid, Jamie McGeever and Dhara Ranasinghe in London, and Nichola Saminather in Singapore; Editing by Mark Trevelyan and Nick Zieminski