* Dollar at two-month peak; spot gold falls

* S&P 500, Nasdaq get lift from Nvidia earnings

* Euro scuffed by German recession confirmation

NEW YORK/LONDON, May 25 (Reuters) -

Progress on U.S. debt ceiling talks bolstered global equities and sent gold prices to a two-month low on Thursday, while forecast-smashing revenue from chipmaker Nvidia lifted the tech-heavy Nasdaq about 2%.

Treasury yields were up and the U.S. dollar climbed to its highest level in over two months.

European markets fell under pressure from news that its biggest economy, Germany, had sagged into recession.

U.S. President Joe Biden and top congressional Republican Kevin McCarthy were edging close to an agreement on the U.S. debt ceiling, according to a person familiar with the talks. The two sides were just $70 billion apart on a deal, the source said.

The Dow Jones Industrial Average reversed earlier losses and rose 14.17 points, or 0.04%, to 32,812.29 by 2:16 p.m. EDT (1816 GMT).

The S&P 500 gained 43.38 points, or 1.05%, to 4,158.62. The Nasdaq Composite gained 238.79 points, or 1.91%, to 12,722.95, bolstered by as chipmaking giant Nvidia's results. Nvidia shares were up 26%.

The MSCI world equity index, which tracks shares in 49 nations, gained 0.27%.

The pan-European STOXX 600 index closed 0.3% lower, bringing its losses over three consecutive days to about 2.7%, knocked down by recent losses in luxury stocks and concerns over the talks to raise the U.S. debt ceiling and avert a default.

Updated German GDP figures showed the euro zone powerhouse slipped into recession in the first few months of the year despite an initial reading suggesting otherwise.

The data pressured the euro, which was down 0.2%.

Asia had been divided overnight with Japan plodding higher but Hong Kong tumbling almost 2% to its weakest level of the year amid renewed geopolitical concerns surrounding Hong Kong-listed Chinese tech giants such as Tencent , Alibaba , AIA and Meituan .

News of progress in the U.S. debt talks came as traders were wary of a possible default in early June.

A credit ratings downgrade could affect the pricing of trillions of dollars of Treasury debt securities. A warning about just such a move by Fitch on Wednesday was mirrored by smaller rival DBRS on Thursday.

On the interest rate front, minutes from the Federal Reserve's latest meeting released on Wednesday showed that policymakers "generally agreed" that the need for further rate increases "had become less certain."

Boston Fed President Susan Collins said on Thursday the time may be at hand for the U.S. central bank to push the pause button on its interest-rate-hiking campaign to assess the impact of past tightening.

"Most of the morning's data supported more Fed tightening, so traders ignored Fed's Collin's comment that a rate pause would give us space to assess actions to date," said Edward Moya, senior market analyst at OANDA.

The number of Americans filing new claims for unemployment benefits rose modestly last week, and the prior week's data was revised sharply lower, the Labor Department

said

.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, rose to 104.2.

The yield on benchmark 10-year Treasury notes rose to 3.8038%. The two-year yield, which rises with traders' expectations of higher Fed fund rates, climbed to 4.4935%.

Gold slid to its lowest level in two months on Thursday as optimism around the U.S. debt ceiling talks lowered safe-haven demand for bullion and robust economic data fueled bets of another rate hike by the Fed.

"It's a one-two punch for gold. ... If a deal is done over the weekend, then that will remove the biggest risk off the table," Moya said.

Spot gold fell 0.74% to $1,942.48 an ounce, and gold futures settled down 1.1% at $1,943.70.

Oil prices dropped by $3 a barrel after Russian Deputy Prime Minister Alexander Novak played down the prospect of further OPEC+ production cuts at its meeting next week.

U.S. crude finished down 3.38% at $71.83 a barrel, and Brent crude was settled down 2.68% at $76.26.

(Additional reporting by Deep Vakil in Bengaluru and Ankur Banerjee in Singapore; Editing by Andrew Heavens, Kirsten Donovan, Nick Macfie and Leslie Adler)