* Spain stocks, bonds rally as Catalonia fudges independence call
* World stocks hit record high, Asia at decade peak
* Japan's Nikkei at 21-month top, KOSPI at record highs
* Spain relief lifts euro, dollar limp around two-week lows
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Oct 11 (Reuters) - World stocks set a record high on Wednesday, as relief that Catalonia had put off any plans to break away from Spain followed a two-decade peak for Asia's biggest share market and more upbeat predictions for the global economy.
Spanish stocks and bonds rallied and the euro reached a two-week high in early European trading after Catalonia's leader, Carles Puigdemont, declined to make a formal declaration of independence on Tuesday. That disappointed many pro-independence supporters but pleased financial markets.
A 1.5 percent jump in Spain's IBEX helped MSCI's 47-country world stocks index touch a record high.
The biggest surge came from Spanish banks, which rallied as much as 4 percent. Spanish government bond yields - a gauge of political tension - saw their second-biggest decline in a month .
"There was a chance Puigdemont would have made a decisive declaration, so now yields are dropping because there is room for negotiation left," said DZ Bank strategist Christian Lenk.
The euro climbed as high as $1.18345 against the dollar, a two-week top. The U.S. currency was down for a fourth day running and on its worst run since July.
U.S. President Donald Trump's feud with Tennessee Senator Bob Corker, an influential fellow Republican, has raised concern that Trump's proposed tax-code overhaul would fail.
"Squabbles surrounding Trump's efforts come as no surprise, but it is still not helping the dollar," said Yukio Izhizuki, senior currency strategist at Daiwa Securities in Tokyo.
The early Spanish gains bolstered already-confident markets. The International Monetary Fund pushed up its forecasts for global growth on Tuesday, helping Wall Street to its latest record high.
Asian shares then climbed to their highest in a decade as Japan's Nikkei reached its strongest since 1996, despite more losses for scandal-hit Kobe Steel . South Korean stocks reached a new record top.
"A risk-on mood has set in and money is flowing out of bond funds into equities funds," said Hugh Dive, chief investment officer at Atlas Funds Management.
"One of the biggest drivers of global equities is the United States, and some of the macro data coming out from there has been quite positive. There is also this view that China is travelling much better than many people had expected."
The dollar was under pressure amid uncertainty over who will be the next Federal Reserve chair, with the predictions market site, PredictIt, favouring Fed Governor Jerome Powell as the most likely candidate.
Powell is regarded as more hawkish than incumbent Janet Yellen, whose term expires in February, but analysts say he probably wouldn't look to unwind stimulus as aggressively as some of the candidates on the list.
Dallas Federal Reserve Bank President Robert Kaplan, who votes this year on Fed policy, had also said overnight that he wants to see more signs of upward inflation before raising interest rates again.
The weaker dollar helped commodities and emerging markets, which borrow heavily in the U.S. currency.
Emerging market stocks sailed to six-year highs. U.S. crude rose 42 cents to $51.34 per barrel and Brent added 25 cents to $56.86, on signs of tighter supply.
Gold prices hovered around their highest in two weeks, with spot gold at $1,289.06 an ounce. Industrial bellwether metal copper was just below a one-month high.
Reporting by Marc Jones Additional reporting by Abhinav Ramnarayan in London and Swati Pandey in Sydney Editing by Larry King