* US dollar declines to lowest in 2-1/2 months
* Fed minutes, European PMIs, Nvidia results feature this week
* Japanese equities touch 1990s highs
NEW YORK/SYDNEY, Nov 20 (Reuters) - Global equities were higher on Monday in muted trading ahead of the U.S. Thanksgiving holiday later in the week, as the U.S. dollar extended a rout to its lowest since early September on expectations U.S. rates have peaked.
Black Friday sales will test the pulse of the consumer-driven U.S. economy this week.
U.S. treasury yields mostly rose. Benchmark oil futures gained $2 on the prospect of supply cuts.
The MSCI World Equity Index gained 0.38% by 10:37 a.m. EST (1537 GMT) and Europe's benchmark STOXX index rose 0.08%.
On Wall Street, the Nasdaq led gains as shares of Microsoft hit record highs. The tech-heavy index gained 0.44% to 14,187.16, as the Dow Jones rose 0.25% to 35,035.33 and the S&P 500 index gained 0.27% to 4,526.14.
The dollar index fell to 103.46, its weakest level since the start of September, as investors appeared to solidify bets that the Fed could start cutting rates next year.
Japanese shares hit highs not seen since 1990, thanks to strong earnings and offshore demand which fuelled a three-week winning streak. The Nikkei ran into profit taking but was still up 8.2% for the month so far with the Topix not far behind.
There were media reports that Israel, the United States and Hamas had reached a tentative agreement to free dozens of hostages in Gaza in exchange for a five-day pause in fighting, but no confirmation as yet.
Minutes of the Fed's last meeting will offer some colour on policy makers' thinking as they held rates steady for a second time.
"Dovish minutes could trigger some downside risk for the dollar," Ricardo Evangelista, senior analyst at ActivTrades, said.
Signs of progress in the battle against inflation in the United States have driven a recovery in stocks this year as investors hope for an end to the cycle of rate hikes that have been policymakers' main tool for fighting price increases on goods.
"We expect the mega-cap tech stocks will continue to outperform given their superior expected sales growth, margins, re-investment ratios, and balance sheet strength," Goldman Sachs analysts said in a note. "But the risk/reward profile is not especially compelling given elevated expectations."
Tech major Nvidia reports quarterly results on Tuesday, and all eyes will be on the state of demand for its AI-related products.
A LOT PRICED IN
Markets have all but priced out the risk of a further U.S. rate hike in December or next year, and imply a 30% chance of an easing starting in March.
Treasury markets braced for the sale of $249 billion in U.S. government debt over the next two days as investors seek a slightly higher premium in the shortened holiday week.
The yield on benchmark 10-year Treasury notes rose to 4.4647% compared with its U.S. close of 4.441% on Friday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.913% from 4.907% previously.
There was relief in Europe for some battered sovereign names, as the risk premia investors ask to hold Italian and Portuguese debt fell after ratings agency Moody's upgraded its view of the two countries.
It upgraded the outlook for Italy from negative to stable, and pushed Portugal's long-term issuer rating up two notches to A3 from Baa2, narrowing the spreads on both bonds relative to the region's benchmark German 10-year bonds.
Closely watched surveys of European manufacturing are due this week. Any hint of weakness will encourage more wagers n early rate cuts from the European Central Bank.
"These surveys will be very important around the euro area services sector given the sharp deterioration seen recently," said NAB analysts.
Markets imply around a 70% chance of an easing as soon as April, even though many ECB officials are still talking of the need to keep policy tight.
Sweden's central bank meets this week and may hike again, given high inflation and the weakness of its currency.
In commodities, oil rose amid speculation OPEC+ will extend, or increase, its production cuts at a meeting on Nov. 26.
Brent rose 2.27% to $82.53 a barrel, as U.S. crude rose 2.17% to $77.54.
Spot gold prices fell 0.43% to $1,971.49 an ounce, after climbing 2.2% last week.
(Reporting by Chris Prentice in New York, Wayne Cole in Sydney and Lawrence White in London; Editing by Lincoln Feast, Susan Fenton, Sharon Singleton and Andrew Heavens)