(Adds close of U.S. markets)
* World shares at six-month peak; Dow, S&P 500 hit new highs
* Pound tumbles after no-deal Brexit fears rise, lifting dollar
* Oil rises on supply concerns before OPEC meeting
By Herbert Lash
NEW YORK, Sept 21 (Reuters) - The U.S. dollar rebounded and world shares hit a six-month high on Friday after China's moves to boost domestic consumption bolstered a rally driven by investor bets that the latest U.S.-China trade dispute was unlikely to dent global growth.
The U.S. benchmark S&P 500 stock index and the Dow industrials climbed to record peaks for a second session, although the S&P 500 closed lower, as did the Nasdaq.
MSCI's gauge of stocks across the globe .MIWD00000PUS gained 0.30 percent to hit the highest level since March 13.
Sterling tumbled and pushed the dollar up after British Prime Minister Theresa May said Brexit talks had hit an impasse and that the European Union must offer an alternative plan after the bloc's leaders rejected her plans. pound GBP= fell 1.42 percent, marking its biggest daily loss since June 2017.
"Sterling bears are out in full force. They've pushed the pound quite aggressively down this morning," said Dean Popplewell, a chief currency strategist at Oanda in Toronto.
The dollar rebounded from early lows but was still set for its biggest weekly drop since February, as the equity market rally and rising bond yields fueled a rush to buy riskier assets. The dollar index .DXY rose 0.32 percent to 94.216 against a basket of major currencies.
A rally in Chinese markets helped lift MSCI's broadest index .MIAPJ0000PUS of Asia-Pacific shares outside Japan 1.24 percent, partly on expectations that Beijing will pump more money into its economy to weather a trade war with the United States. and banks drove Britain's top share index .FTSE up 1.67 percent, while Germany's DAX .GDAXI , home to some of Europe's biggest exporters, rose 0.85 percent.
The week's euphoria underscored how over-valued U.S. stocks are, said Michael Geraghty, equity strategist at Cornerstone Capital Group in New York.
U.S. capital markets are exuberant, with stock valuations high at 21 times trailing earnings and struggling economies around the world a risk for U.S. stocks, he said.
"There's really been no bad news to cause this market to take a breather for weeks," Geraghty said. "The risk for U.S. equity markets is what's going on overseas."
The Dow Jones Industrial Average .DJI rose 86.52 points, or 0.32 percent, to 26,743.5. The S&P 500 .SPX lost 1.08 points, or 0.04 percent, to close at 2,929.67, and the Nasdaq Composite .IXIC dropped 41.28 points, or 0.51 percent, to 7,986.96.
For the week, the Dow added 2.18 percent, the S&P rose 0.83 percent and the Nasdaq shed 0.29 percent.
Shares of Boeing (NYSE:BA) BA.N and 3M (NYSE:MMM) MMM.N , among U.S. companies most exposed to a trade war, closed higher. However, semiconductor makers declined after top chipmaker Micron MU.O said U.S. tariffs on Chinese goods would weigh on its results for as much as a year. long-dated Treasury yields slipped, in tandem with those in Europe, as Brexit talks stalled between Britain and the European Union.
U.S. 2-year yields, however, remained unaffected, hitting a fresh 10-year high in the run-up to an expected rate increase at next week's Federal Reserve monetary policy meeting.
Benchmark 10-year notes US10YT=RR rose 4/32 in price to push yield down to 3.0628 percent.
Oil prices rose ahead of a meeting of the Organization of Petroleum Exporting Countries (OPEC) and other large crude exporters on Sunday that is expected to focus on production increases as U.S. sanctions restrict exports from Iran.
Brent crude oil LCOc1 settled up 10 cents at $78.80 a barrel. U.S. light crude CLc1 gained 46 cents to settle at $70.78.
U.S. gold futures GCv1 for December delivery settled down $10 at $1,201.30 per ounce.
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