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/]