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GLOBAL MARKETS-Stocks, bond yields, dollar up after Trump tax plan

* Trump proposal seen as a step forward for tax cut

* Markets not convinced if Congress can agree to any tax plan

* Hopes of Fed Dec rate hike, Trump tax cut support dollar

TOKYO, Sept 28 (Reuters) - Asian shares were firm on Thursday while U.S. bond yields and the dollar held sizable gains made the previous day after President Donald Trump proposed the biggest U.S. tax overhaul in three decades.

The dollar also drew support from strong U.S. durable goods orders data that cemented expectations the Federal Reserve is on course to raise interest rates for the third time this year in December.

Japan's Nikkei rose 0.5 percent while MSCI's broadest index of Asia-Pacific shares outside Japan was little changed in early trade.

On Wall Street, small-cap shares, seen as benefiting the most from the proposed tax cuts, soared.

Russel 2000 small-cap index notched a record high, rising 1.9 percent for its biggest one-day gain in almost six months.

The Dow Jones Industrial Average rose 0.25 percent while the S&P 500 gained 0.41 percent.

"The fact that Trump made the tax proposal was seen as a step forward," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

Trump offered to lower corporate income tax rates, cut taxes for small businesses and reduce the top income tax rate for individuals.

The proposal faces an uphill battle in Congress, however, with Trump's own party divided, and the plan already prompting criticism that it favours the rich and companies and could add trillions of dollars to the deficit.

"It is hard to expect this proposal to pass the Congress smoothly. We have to pay attention to how the Republicans will view this," said Takafumi Yamawaki, chief fixed income strategist at J.P. Morgan Securities.

"It is possible that the net fiscal deficit spending will be smaller than what the stock markets expect," he added.

In the currency market, as the dollar broadly gained, the euro hit a six-week low of $1.1717 on Wednesday and last traded at $1.1752, having shed 1.7 percent so far this week.

The dollar also shot up to a 2-1/2-month high of 113.26 yen the previous day and was last fetching 112.78 yen.

The Canadian dollar extended its losses, suffering its biggest drop in eight months on Wednesday, after Bank of Canada Governor Stephen Poloz dampened expectations for further interest rate hikes this year.

The Canadian unit fell to C$1.2484 to the U.S. dollar, its lowest in a month.

The dollar strengthened against many other emerging market currencies while gold hit a one-month low of $1,281.5 per ounce.

U.S. bond yields also jumped with two-year notes yield rising to a nine-year high of 1.483 percent in anticipation of a rate hike in December.

Comments from Fed Chair Janet Yellen that the Fed needs to continue with gradual rate hikes have cemented expectations for a year-end policy tightening.

New orders for key U.S.-made capital goods increased more than expected in August, helping to boost optimism on the U.S. economy.

Yields on longer-dated bonds also soared as Trump's tax proposal stoked worries about fiscal deterioration. U.S. municipal bonds were also sold for the same reason.

The 10-year yield rose to 2.316 percent, its highest in almost two months compared with 2.229 percent late on Tuesday while the 30-year bond yield climbed 9 basis points, the biggest one-day rise in almost seven months, to 2.87 percent.

Oil prices hovered a tad below their peaks hit earlier this week as the market consolidated after a strong rally this month.

Brent futures traded at $57.71 a barrel, down from Tuesday's 26-month peak of $59.49.

U.S. West Texas Intermediate crude (WTI) fetched $52.11 per barrel, just below Tuesday's five-month high of $52.43 after oil stockpiles in the world's top consumer unexpectedly drew down, with refiners coming back online following Hurricane Harvey last month.

(Editing by Shri Navaratnam)