GLOBAL MARKETS-Dollar slides as relief at U.S. debt deal fades

* U.S passes temporary spending, borrowing bills

* Relief rally short-lived on concerns over consequences

* Dollar index down, euro and yen gain

* European shares retreat from highs, Wall Street opens weaker

* Gold hits one-week high, oil slides

By Richard Hubbard

LONDON, Oct 17 (Reuters) - The dollar fell and Wall Street opened lower on Thursday as relief over a U.S. budget deal gave way to worries over the effects of the 16-day government shutdown and prospects of a re-run early next year.

The legislation signed overnight by President Barack Obama to fund the government until Jan. 15 and extend a debt ceiling deadline to Feb. 7 did nothing to resolve the underlying disputes that led to the crisis in the first place.

"The U.S. can give a sigh of relief for now but the New Year could bring a dangerous sense of déjà vu," Luke Bartholomew, investment analyst at Aberdeen Asset Management, said.

Equity markets in the United States and Asia initially welcomed the last-minute deal which pulled the world's biggest economy back from the brink of a historic default, but the rally ran out of steam as the longer-term implications sank in.

The MSCI world equity index, tracking shares in 45 countries, briefly touched a fresh five-year high, though Europe's broad FTSE Eurofirst 300 index shed 0.15 percent by midday.

Wall Street opened lower on Thursday as investors turned their focus away from events in Washington to the earnings of heavyweight companies such as IBM. The Dow Jones industrial average fell 122.34 points, or 0.8 percent, to 15,251.49 and the S&P 500 0.32 percent to 1,716 points.

"Markets had expected the can to be kicked down the road, and the can's been kicked down the road a little bit. We're not really waking up in a radically new world," Bartholomew said.

"Had it all gone wrong, then the market reaction would have been very different."

FISCAL CLIFF II

The temporary nature of the agreement and longer-term worries that the debt ceiling risks would become a structural drag on the economy weighed heavily on debt markets, driving Treasury prices higher.

The 10-year benchmark Treasury note yield, which moves inversely to the price, slipped to 2.62 percent from around 2.68 percent late in New York, while U.S. Treasury bill futures gained 0.1 percent.

German government bond prices, which tend to rise in times of uncertainty, tracked the U.S. Treasury market higher as well, sending the 10-year Bund yield down 4.3 basis points to 1.89 percent.

"The market is increasingly confident that a reduction of QE (quantitative easing) is unlikely to be on the agenda until well into 2014. So that's given Treasuries a boost and that's filtered through to Bunds," Nick Stamenkovic, bond strategist at RIA Capital Markets, said.

FED DELAY

The likelihood that the fiscal saga would mean a delay in the start of the Federal Reserve's planned withdrawal of its monetary stimulus was strengthened by Dallas Fed President Richard Fisher.

In remarks prepared for delivery to the Economic Club of New York he said: "Kicking the can down the road for a few months will not solve the pathology of fiscal misfeasance that undermines our economy and threatens our future."

Markets had expected the Fed to announce in September it would cut its bond purchases. When that didn't happen they switched forecasts of scaling back to December, and now many anticipate no action until next year.

By pushing back expectations of a Fed tapering, the deal encouraged traders to sell the dollar against the currencies of nations perceived to have less accommodative policies.

This saw the greenback fall 0.9 percent against Japan's yen to 97.88 yen, while the euro rose one percent to $1.3668 . It also supported higher-yielding and growth-linked currencies including the Australian and New Zealand dollars near recent highs.

Against a basket of currencies, the greenback had slipped one percent to 79.6 having earlier set a one-month high on initial relief that a full-blown crisis had been averted.

The weaker dollar and the likelihood of the Fed holding back on reducing its monetary stimulus also gave gold a big lift.

The spot gold price surged to a one-week high just over $1,320 per ounce, up 3.0 percent on the day, while the December COMEX gold futures contract touched a high of $1,320.50 .

"Tapering will be postponed much further, so that's probably the main aspect behind the current spike in prices," Commerzbank analyst Daniel Briesemann said.

Brent crude declined 75 cents to $109.80 a barrel as of 1400 GMT, with investors reluctant to take on fresh positions ahead of a deluge of data expected to emerge as Washington gets back to business.