(Adds U.S. market open, byline, dateline; changes dateline to NEW YORK, previous MILAN)
* MSCI World index hits 3-week high
* Dollar down at 7-week low, Treasury yields edge up
* World FX rates in 2018 tmsnrt.rs/2egbfVh
By Herbert Lash
NEW YORK, Sept 20 (Reuters) - World stock markets rallied on Thursday, while the U.S. dollar slipped, amid expectations that fresh U.S. and Chinese tariffs on reciprocal imports will be less harsh than feared.
Still, investors remained cautious about the next steps in the U.S.-Sino trade war, driving long-dated U.S. Treasury yields lower. But the equity market's early take of the latest trade moves was that it was mostly benign for the U.S. economy.
Larry Fink, chief executive of BlackRock Inc. <BLK.N,> the world's largest asset manager, said the United States was "a big winner" in the trade spat with China "in the short-term."
The greenback fell amid a drop in safe-haven demand for the currency and a resurgence in global risk appetite on relief that the new round of U.S. and Chinese import tariffs was less harsh than feared.]
The Dow industrials index became the last of key U.S. stock indexes to regain record territory, while the benchmark S&P 500 opened at a fresh record high.
"Our general view on the trade issue is that so far it has not been economically significant," Mona Mahajan, U.S. Investment Strategist at Allianz Global Investors in New York.
"Some market participants are hoping that China comes to the table and negotiates a deal, so perhaps there's a little bit more of that," Mahajan said, referring to the bullish sentiment lifting equities.
The MSCI index tracking shares in 47 countries rose 0.71 percent to a three-week high, supported by gains in Europe and Asia.
The pan-European FTSEurofirst 300 index of leading regional shares closed up 0.75 percent, as investors focused on bullish macroeconomic and corporate news.
Consumer confidence and small business optimism remain near post-crisis highs, while there's still more of a positive impact from earnings and U.S. tax reform, along with two more quarters of corporate repatriation of money held abroad, Mahajan said.
On Wall Street, the Dow Jones Industrial Average rose 220.45 points, or 0.83 percent, to 26,626.21. The S&P 500 gained 17.11 points, or 0.59 percent, to 2,925.06 and the Nasdaq Composite added 60.28 points, or 0.76 percent, to 8,010.31.
Upbeat U.S. economic data pushed debt yields a little higher, but that was short-lived as investors remained focused on the U.S.-Chinese trade conflict.
Some analysts were concerned China would resort to other non-trade measures to fight back against the United States.
"We have been moving higher in yields ever since the last jobs report showed higher wages and now with the increased tension between the U.S. and China, there are some concerns that the Chinese would back away from owning Treasuries," said Lou Brien, market strategist, at DRW Trading in Chicago.
The dollar index, tracking it against six major currencies, fell 0.54 percent, with the euro up 0.69 percent to $1.1752. The Japanese yen weakened 0.16 percent versus the greenback at 112.47 per dollar.
The dollar had benefited from growing trade-related tensions in recent months, as investors bet it would gain at the expense of riskier currencies.
Some market participants believe the dollar's current weakness might be fleeting as the Federal Reserve next week is widely expected to raise benchmark borrowing costs and shed more light on its future rate path.
Benchmark 10-year notes last rose 2/32 in price to yield 3.0757 percent.
Oil prices steadied after U.S. President Donald Trump called on the Organization of Petroleum Exporting Countries to "get prices down now," slowing an upward surge that had pushed the market towards four-year highs.
Brent crude oil was down 50 cents at $78.90 a barrel. U.S. light crude oil slid 16 cents at $70.96 a barrel after rising nearly 2 percent on Wednesday. (Reporting by Herbert Lash; Editing by Bernadette Baum)