GLOBAL MARKETS-European shares test 2-yr highs, yen volatile before BOJ
* European shares up 0.3 pct
* Dollar dips from 2-1/2-year high vs yen
* German government bonds dip
LONDON, Jan 21 (Reuters) - European shares inched towards two-year highs and German Bund futures dipped on Monday, as a political attempt to break a budget impasse in the United States revived appetite for shares and dented appetite for safe-haven assets. U.S. House Republican leaders said on Friday they would seek to pass a three-month extension of federal borrowing authority in the coming days to buy time for the Democrat-controlled Senate to pass a plan to shrink budget deficits. European shares were supported by the news, but with no clear response from the Democrats and a thin session expected due to a market holiday in the United States, the impact on other assets such as Bunds is likely to be limited. London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX opened between 0.4 and 0.5 percent higher, lifting the pan-European FTSEurofirst 300 0.3 percent and MSCI's world index 0.1 percent. "There's a bit of encouragement coming out of the U.S.," said Toby Campbell-Gray, head of trading at Tavira Securities in Monaco. He added that equity markets had remained resilient in the face of an uncertain economic outlook as many investors had stepped in to buy "on the dip" on days when shares had fallen. Ahead of the region's first finance ministers' meeting of the year the euro was steady against the dollar, while the yen firmed after touching a new low, ahead of a Bank of Japan decision expected to deliver bold monetary easing. The dollar slipped back to a low of 89.42 yen and was last trading at 89.57 yen, while the euro also fell to a low of 119.08 and last traded at 119.27 yen. With little in the way of economic data or debt issuance and U.S. markets shut for the Martin Luther King Jr. public holiday, it was expected to be a fairly quite market day. Oil prices took their cues from a report in the United States at the end of last week that showed consumer sentiment at its weakest in a year as a result of the uncertainty surrounding the country's debt crisis. Concerns about demand overshadowed supply disruption fears reinforced by the Islamist militant attack and hostage-taking at a gas plant in Algeria, a member of the Organization of Petroleum Exporting Countries. U.S. crude futures fell 0.5 percent to $95.08 a barrel, while Brent fell 0.3 percent to $111.55 early on Monday but had recovered to almost flat as European trading gathered pace.