By Chris Prentice and Tom Arnold

WASHINGTON/LONDON (Reuters) -U.S. stock indexes set fresh records on Thursday and European shares closed near all-time highs, fueled by supportive U.S. jobless claims data and a breakthrough in infrastructure spending talks in Washington.

President Joe Biden on Thursday embraced a bipartisan Senate deal to spend hundreds of billions of dollars on infrastructure projects, building roads, bridges and highways in an expanded effort to stimulate the American economy.

The U.S. dollar retreated in a day of choppy trading, while sterling fell after the Bank of England kept its stimulus program unchanged and left its benchmark interest rate at an all-time low.

The S&P 500 and the Nasdaq closed at record highs, boosted by shares of Tesla and other top-shelf technology firms and jobless claims data that bolstered investor hopes of a steady labor market recovery.

The S&P 500 finished 0.58% higher, the Nasdaq Composite added 0.69%, and the Dow Jones Industrial Average rallied 0.95%.

“Jobless claims numbers came in a little high but looking week to week they’re still moving in the right direction,” said Mike Loewengart, managing director of investment strategy at E*TRADE Financial.

The data is “another proof point that the economy is coming back to life, albeit maybe in a slightly bumpier fashion than some anticipated at this stage,” he said.

The MSCI world equity index gained 0.55%. In Europe, the STOXX 600 gained 0.87%, ending near an all-time high set earlier this month after news that German business morale hit its highest in 2-1/2 years.

Britain’s FTSE 100 share index rose 0.51% after the Bank of England kept the size of its stimulus program unchanged and left its benchmark interest rate at an all-time low of 0.1%, as expected.

In Asia, markets made smaller gains. MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.37%, recovering from a one-month trough touched earlier this week, while Japan’s Nikkei was unchanged.

Stock markets have whipsawed over the last week, feeling the after-effects of a surprise projection for Federal Reserve rate increases as soon as 2023, which knocked stocks, boosted the dollar and led to the flattening of the U.S. bond yield curve.

Investors are now pricing the first full U.S. interest rate rise for February 2023, compared with December 2022 previously.

Ten-year U.S. Treasury yields hung below 1.5% as investors saw little reason for the Fed to deviate from its plans to raise interest rates in 2023, while government bond yields in the euro zone drifted lower, reversing early gains. [US/]

“Until bond yields break out in a sustainable fashion, in either direction, it remains very hard to determine which direction stocks are headed in over the near term,” JPMorgan analysts wrote in a note. “Much continues to hinge on the upcoming growth data.”

Germany’s Ifo institute said its business climate index hit its highest level since November 2018 on surging corporate optimism about the second half of the year in Europe’s largest economy. A Reuters poll of analysts had pointed to a June reading of 100.6.

It followed the release on Wednesday of strong European manufacturing data. ISM manufacturing and U.S. non-farm payrolls data are due next week.

The U.S. dollar edged lower against a basket of six other currencies in choppy trading. It remained well below last week’s two-month high as traders navigated conflicting signals from Fed officials on the timing of a withdrawal of monetary stimulus. [FRX/]

On Wednesday, two Fed officials said a period of high inflation in the United States could last longer than anticipated, just a day after Fed Chair Jerome Powell played down rising price pressures.

Mexico’s peso jumped, leading gains among its Latin American counterparts, after a surprise rate hike from the central bank.

The euro was up 0.05% against the dollar. The greenback eased against the Japanese yen but held near a 15-month high of 111.11 touched earlier in the session.

The BoE’s decision on Thursday was largely anticipated by economists polled by Reuters who expect the central bank will wait to see if a post-lockdown jump in inflation proves transitory and whether unemployment rises when the government scales back its job-protection scheme.

The British pound shed 0.2% against the dollar.

Oil prices settled up, hovering near the previous session’s three-year highs set amid drawdowns in U.S. inventories and accelerating German economic activity. [O/R]

Brent settled up 37 cents, or 0.5%, at $75.56 a barrel, after earlier rising to $75.78. U.S. crude settled up 22 cents at $73.30 a barrel, after hitting a session high of $73.61 earlier. [O/R]

Bullion prices dipped as the mixed Fed outlook kept investors on edge.

Spot gold dropped 0.3% to $1,773.13 an ounce by 4:14 p.m. EDT (2015 GMT). U.S. gold futures GCv1 settled 0.4% lower at $1,776.70. [GOL/]

(Reporting by Chris PrenticeAdditional reporting by Herb Lash in New York; Editing by Dan Grebler and Jonathan Oatis)