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UPDATE 1-Yellen: Recovery "increasingly broad based" in both U.S. and worldwide

worldwide@ (Adds context, market reaction)

WASHINGTON, Nov 29 (Reuters) - The U.S. economy has gathered steam this year and will warrant continued interest rate increases amid a global recovery, Federal Reserve Chair Janet Yellen told congressional leaders on Wednesday.

"The economic expansion is increasingly broad based across sectors as well as across much of the global economy," Yellen said in prepared remarks delivered to the Joint Economic Committee.

Stock indexes, bond yields and the dollar were all higher in initial trading.

With weak inflation likely to prove "transitory," she said "we continue to expect that gradual increases in the federal funds rate will be appropriate."

She did not in her prepared remarks comment on the timing of the next rate increase, which markets now expect and which Fed officials have telegraphed will come during the upcoming Dec. 12-13 policy meeting.

According to minutes of the Fed's last meeting "many participants" felt a rate increase would likely be warranted "in the near term." At his confirmation hearing to become Fed chair, Fed Governor Jerome Powell on Tuesday said the case for a December rate increase was "coming together."

The one question mark involves inflation, which has fallen this year and has been consistently below the Fed's 2 percent target. Some policymakers feel the Fed should not raise rates until inflation accelerates, and even argue that the Fed's talk of rate hikes itself has become a problem by weakening public and market expectations about the path of prices.

In what may be one of her last public appearances before leaving the Fed chair early next year, however, Yellen focused her written testimony on the economy's continuing momentum.

Job growth averaging 170,000 positions per month is enough to continue to absorb new and sidelined workers into the economy, and growth ticked up to a more than 3 percent annual rate over the last two quarters.

On a day after the stock market touched new records, Yellen said that while asset values were "high by historical standards, overall vulnerabilities in the financial sector appear moderate."

She noted that if Congress, currently in the middle of debating tax cuts, wants to raise the country's economic potential, lawmakers "might consider" policies to encourage business and infrastructure investment, improved education and innovation. (Reporting by Howard Schneider; Additional reporting by Jason Lange and Lindsay Dunsmuir; Editing by Chizu Nomiyama and Andrea Ricci)