* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
* MSCI ACWI hits highest since March 13
* Dollar slips as trade worries ebb
* Oil prices edge higher
By Ritvik Carvalho
LONDON, Sept 21 (Reuters) - World shares hit their highest levels in over six months on Friday, as investors gravitated to the view that the latest exchange of tariffs between the United States and China may be less damaging than initially feared.
Shares in Europe rose strongly at the open, extending a relief rally that began on Wall Street overnight and ran through Asian markets. The pan-European STOXX 600 index was up 0.6 percent.
A rally in Chinese markets helped lift the MSCI's broadest index of Asia-Pacific shares outside Japan 1.27 percent, buoyed in part by expectations that Beijing will pump more stimulus into its economy to weather the trade war. The index has rebounded 4.6 percent from a 14-month low on Sept. 12.
Chinese shares, which had been hit the hardest by the trade war, rallied. The CSI 300 index of Shanghai and Shenzen shares , which slumped to a two-year low last week, rose 3 percent, on course for its largest weekly gain in more than two years.
Japan's Nikkei rose 0.8 percent, hitting an eight-month high.
The broad strength across markets helped MSCI's All-Country World Index, which tracks shares in 47 countries, hit its highest level since March 13. The index was last up 0.4 percent on the day, and was set to post its best weekly performance since early May.
On Wall Street, trade-sensitive industrial stocks led the gains on Thursday. The Dow Jones Industrial Average rose 0.95 percent while the S&P 500 gained 0.78 percent, both hitting record highs.
The latest rally comes after new U.S. and Chinese tariffs on each other's goods were set at lower rates this week than previously expected, raising hopes that hostilities between the world's two largest economies may be easing.
Earlier this week, Chinese Premier Li Keqiang pledged on that Beijing will not engage in competitive currency devaluation, news that also helped calm investors who were worried about a further escalation in trade tensions.
"The tariffs that were announced by both sides during the week were deemed to be not as harsh as originally suspected," said David Madden, markets analyst at CMC Markets in London.
"The U.S. in particular showed restraint, but that was partially so the Trump administration would have more ammunition should they feel it is required down the line. Now that the latest series of tariffs are out of the way, investors fell back into their bullish routine."
Despite growing anecdotal reports from companies on both sides of the Pacific that the trade war is starting to impact their operations, the outlook for corporate profits remained solid in many markets on the back of strong global growth, keeping equity valuations relatively attractive.
Still, some analysts cautioned that the reversals in various assets including U.S. industrial shares and non-U.S. developed markets could be driven primarily by position squaring ahead of the end of quarter, and not reflect a decisive shift in investor sentiment.
In the currency market, the dollar slipped to a two-month low against a basket of major trading partners as easing worries on trade wars quelled bids for the U.S. currency.
The euro last traded at $1.1785, after touching a 3-month high of $1.18030. It lost some steam after a euro zone manufacturing survey came in below forecasts.
"The weakness in the dollar is prompting investors to unwind their short bets against other currencies such as the euro and this move may have further room to run," said Manuel Oliveri, a currency strategist at Credit Agricole in London.
The closely-watched summit of the European Union and the United Kingdom produced little progress on the thorny issues of trade and the Irish border.
EU leaders have warned British Prime Minister Theresa May that they are ready to cope with Britain crashing out of the bloc if she does not compromise.
At home, Britain's former Brexit minister David Davis has said up to 40 lawmakers from the ruling party will vote against May's plans to leave the European Union, meaning she may struggle to get her deal through parliament.
The pound last stood at $1.3228, down 0.3 percent on the day .
Amid positive risk sentiment, the yen slid to a two-month low of 112.88 to the dollar.
Oil futures inched up on Friday amid concerns over supply as U.S. sanctions on Iran's crude exports loom, although calls by U.S. President Donald Trump for lower oil prices dragged.
In Europe on Friday U.S. light crude was up 0.1 percent at $70.36 a barrel. Brent crude oil ticked up 0.2 percent to $78.84 a barrel.
Spot gold rose 0.1 percent to $1,208.93 an ounce. (Reporting by Ritvik Carvalho; additional reporting by Saikat Chatterjee in London and Hideyuki Sano in Tokyo)