* U.S. factory, private jobs data beat expectations
* Oil rebounds from 3-week lows on large U.S. inventory draw
* China's yuan strengthens beyond 6.8 per dollar (Updates market action; changes dateline, previous LONDON)
By Richard Leong
NEW YORK, June 1 (Reuters) - Major world stock markets rose on Thursday with the S&P 500 and Nasdaq hitting record highs on encouraging U.S. economic data, while oil prices recovered from three-week lows following a bigger-than-expected drop in U.S. crude inventories.
Surprisingly strong data on U.S. private jobs growth and manufacturing activity in May revived traders' appetite for the dollar and reduced the safe-haven appeal of gold and U.S. and German government bonds.
The Institute for Supply Management said its barometer of U.S. factory activity edged up to 54.9 last month from 54.8 in April, while ADP reported private payrolls grew by 253,000 last month, beating analysts' median forecast of a 185,000 increase.
These reports reinforced traders' expectations the Federal Reserve will raise interest rates at its June 13-14 policy meeting and supported the outlook for possibly another hike after June.
"We think it’s consistent with continued progress in the economy and possibly a hike in September," said John Herrmann, director of interest rates strategy at MUFG Securities in New York.
In midday trading, the Dow Jones Industrial Average rose 63.13 points, or 0.3 percent, to 21,071.78, the S&P 500 gained 10.24 points, or 0.42 percent, to 2,422.04 and the Nasdaq Composite added 28.81 points, or 0.46 percent, to 6,227.33.
Earlier Thursday, the S&P and Nasdaq reached intraday record peaks at 2,423.86 and 6,233.15, respectively.
Europe's broad FTSEurofirst 300 index increased 0.39 percent, at 1,538.07, while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.68 points or 0.14 percent, to 498.5.
The MSCI world equity index, which tracks shares in 45 nations, rose 1.56 points or 0.34 percent, to 465.35.
The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.32 percent, to 97.233.
China's yuan, however, strengthened beyond 6.8 per dollar for the first time since Nov. 11 after the central bank pushed its reference rate, around which the spot rate can fluctuate, 0.8 percent higher in the second-largest single-day appreciation of the currency since it was de-pegged from the dollar in 2005.
Traders said major state-owned banks were selling dollars.
In the bond market, benchmark 10-year Treasury yields were up 3 basis points at 2.225 percent, while the German counterpart was marginally higher at 0.310 percent.
In commodities, Brent crude was last up $0.38, or 0.75 percent, at $51.14 a barrel. U.S. crude was last up $0.57, or 1.18 percent, at $48.89 per barrel.
Government data on Thursday showed U.S. crude inventories dropped by 6.4 million barrels, greater than a forecast 4.4 million-barrel decline. The stock draw offered some respite from worries over a global oversupply in oil.
Spot gold prices fell $5.14 or 0.41 percent, to $1,262.95 an ounce.
Additional reporting by Sam Forgione and Julia Simon in New York; Nigel Stephenson, Ritvik Carvalho and Christopher Johnson in London; Nichola Saminather in Singapore; and Aaron Sheldrick in TOKYO; Editing by Tom Heneghan and Chris Reese