(Updates after U.S. market close)
* Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
* Dollar index hits two-month high
By Rodrigo Campos
NEW YORK, July 29 (Reuters) - The British pound touched its lowest level in over two years against the dollar after Prime Minister Boris Johnson said a hard divorce from the EU was in the cards, while stocks dipped globally with Wall Street backing off record highs.
The dollar index edged up and touched its highest since late May as markets counted down to a likely cut in U.S. interest rates this week, with much riding on whether the Federal Reserve signals more cuts will follow.
Sterling fell to a 28-month low of $1.2213 as Johnson's cabinet prepared the ground for a "no-deal" British exit from the European Union on Oct. 31, which many investors say would tip Britain into a recession and inject unwanted uncertainty into financial markets.
The pound was last trading at $1.2223, down 1.27% on the day.
"There is a realization the market had not fully priced the increased chances of a no-deal Brexit," said Claire Dissaux, head of global economics and strategy at Millenium Global Investments.
The dollar index rose 0.03%, with the euro up 0.17% to $1.1144.
The Japanese yen weakened 0.09% versus the greenback at 108.79 per dollar.
A stronger-than-expected U.S. gross domestic product report on Friday lead some investors to doubt whether the Fed will continue easing this year after its Wednesday meeting.
Interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday, with a 1-in-4 chance of a half-point move.
On Wall Street, Amazon and Facebook weighed down the S&P 500 while Apple rose a day ahead of earnings. Absent company news, the Fed remained as the main market catalyst.
"Apple's results will be a good read into trade and the situation with China and if Apple has a good number it would be a stabilizing force for the technology sector," said Craig Hodges, portfolio manager with Hodges Funds in Dallas, Texas.
The Dow Jones Industrial Average rose 28.9 points, or 0.11%, to 27,221.35, the S&P 500 lost 4.89 points, or 0.16%, to 3,020.97 and the Nasdaq Composite dropped 36.88 points, or 0.44%, to 8,293.33.
MSCI's gauge of stocks across the globe shed 0.16% and emerging market stocks lost 0.28%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.54% lower, while Japan's Nikkei lost 0.19%.
The pan-European STOXX 600 index earlier rose 0.03%.
Investors were also keeping an eye on U.S.-China trade talks. U.S. and Chinese negotiators meet in Shanghai this week for their first in-person talks since a G20 truce last month, but expectations for a breakthrough are low.
Oil futures meandered throughout the session but ended decidedly in the black as Fed easing expectations more than offset the reaction to "constructive" Iran talks over the weekend.
U.S. crude rose 1.51% to $57.05 per barrel and Brent was last at $63.89, up 0.68% on the day.
"Today's kickoff to some renewed trade negotiations between U.S. and China will likely inspire some modest price support," Jim Ritterbusch of Ritterbusch and Associates said in a note. "However, the mid-week Fed decision and associated commentary could prove to be this week's larger driver of oil pricing."
U.S. Treasury yields were lower across the board with investors focused on the widely expected interest rate cut by the Fed later this week.
"People say the Fed could go 50 basis points, but I think that's not going to happen," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "The question is what they are going to say about future cuts."
Benchmark 10-year notes last rose 6/32 in price to yield 2.0598%, from 2.081% late on Friday.
The 30-year bond last rose 10/32 in price to yield 2.5871%, from 2.601% late on Friday. Spot gold added 0.6% to $1,426.31 an ounce. U.S. gold futures gained 0.49% to $1,426.20 an ounce.
Copper rose 0.87% to $6,015.00 a tonne.
Reporting by Rodrigo Campos; additional reporting by Olga Cotaga in London, Shreyashi Sanyal in Bengaluru and Kate Duguid, Stephanie Kelly & Gertrude Chavez-Dreyfuss in New York Editing by Alistair Bell, Nick Zieminski and Susan Thomas