(Refiles to add in 4th paragraph full name and title for Fed Chairman Jerome Powell)
* MSCI World Equity index hits 2-1/2 week high
* Dollar skids as U.S. rate pause bets weigh
* Gold rises as shifting Fed rate-hike expectation hurts dollar
* Sino-U.S. tariff talks to resume
By Saqib Iqbal Ahmed
NEW YORK, Jan 7 (Reuters) - An index of world stocks rose on Monday, extending strong gains logged last week as investors took heart from Friday's robust U.S. employment data and a message from the U.S. central bank that it would be patient and flexible in policy decisions this year.
Growing bets the Federal Reserve will halt its multi-year rate hike cycle sent the dollar lower across the board, while rising equity markets and support from OPEC production cuts helped lift oil prices.
MSCI's world equity index .MIWD00000PUS , which tracks shares in 47 countries, was up 0.77 percent, its highest since Dec. 19.
On Friday, Fed Chairman Jerome Powell told the American Economic Association that the Fed is not on a preset path of rate hikes and that it will be sensitive to the downside risks markets are pricing in. comments, coming after a robust U.S. jobs report, helped boost risk sentiment and lift stock markets around the world.
On Monday, U.S. stocks edged higher as investors turned their attention to the latest round of U.S.-China trade talks and a prolonged government shutdown, halting Wall Street's strong surge from Friday.
U.S. officials are meeting their counterparts in Beijing this week for the first face-to-face talks since U.S. President Donald Trump and China's President Xi Jinping agreed in December to a 90-day truce in a trade war that has roiled global markets.
China has the "good faith" to work with the United States to resolve trade frictions, the Foreign Ministry said on Monday, as the world's two largest economies resumed talks in a bid to end their trade dispute. has been one of the big factors, along with the budget stalemate, contributing to the climate of fear that we're seeing," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
The Dow Jones Industrial Average .DJI rose 74.9 points, or 0.32 percent, to 23,508.06, the S&P 500 .SPX gained 14.26 points, or 0.56 percent, to 2,546.2 and the Nasdaq Composite .IXIC added 58.25 points, or 0.86 percent, to 6,797.11.
European shares were slightly lower amid lingering worries about the euro zone economy and Brexit. The pan-European STOXX 600 .STOXX was down 0.29 percent. currency markets, the dollar weakened amid diminished expectations for further U.S. interest rate hikes. dollar index .DXY , which tracks the greenback versus the euro, yen, sterling and three other currencies, was down 0.48 percent at 95.722.
"Fed Chair Powell's comments Friday that policymakers were flexible and 'listening carefully' to financial markets helped support the impression that the Fed tightening cycle may slow or pause in the coming months," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
Interest rate futures traders are now pricing in a partial rate cut for this year, while the Fed has indicated that two rate hikes are likely.
Gold rose and palladium hit a record high as the weaker dollar spurred demand for the metals from holders of other currencies. Spot gold XAU= was up 0.27 percent at $1,288.25 per ounce. Treasury prices erased early gains after a private report released on Monday showed growth of U.S. services industries slowed to a five-month low in December, signalling the world's largest economy is decelerating faster than economists' forecasts. 10-year notes US10YT=RR shed 2/32 in price to yield 2.6640 percent, from 2.659 percent on Friday.
Stable equity markets and production cuts by the Organization of the Petroleum Exporting Countries helped oil prices rise for a fifth straight session. crude oil LCOc1 was up $1.66 at $58.72 a barrel. U.S. crude CLc1 was up $1.64 at $49.6 a barrel.