(Adds U.S. market open, byline; changes dateline; previous LONDON)
* MSCI world, Wall Street indexes touch new highs
* Sterling heads for worst week since late 2017
* U.S. Treasury yields rise on growth outlook
By Herbert Lash
NEW YORK, Dec 20 (Reuters) - A year-end rally in global equity markets extended gains on Friday, helped by data showing relatively strong U.S. growth, while sterling headed toward its worst week in more than two years on concerns over how Britain will leave the European Union.
The dollar firmed and U.S. Treasury yields rose after the Commerce Department said gross domestic product increased at a 2.1% annualized rate in the third quarter, as expected, with consumer spending coming in stronger than previously reported.
MSCI's gauge of stocks across the globe gained 0.39% to a record high, while Wall Street's three key equity indices on also marked new highs.
The preliminary U.S.-China trade deal and the Federal Reserve's increase of short-term liquidity in the repo market allowed risk assets to move higher, said Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York.
"The deliverance of phase one of a trade deal and the Fed getting ahead of any potential systemic-type issues has cleared the path for this market to inch higher," Abbasi said. "There isn't anything that can shift sentiment dramatically."
The benchmark S&P 500 extended its run of record highs to seven straight sessions, its longest streak in more than two years.
The Dow Jones Industrial Average rose 119.33 points, or 0.42%, to 28,496.29. The S&P 500 gained 18.28 points, or 0.57%, to 3,223.65 and the Nasdaq Composite added 38.20 points, or 0.43%, to 8,925.41.
European shares also rallied, with the pan-European STOXX 600 index rising 0.70%. Indexes in Frankfurt, Paris and London all made similar gains in thin trading.
Emerging market stocks rose 0.15%.
Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan added a sliver, having risen 1.2% so far this week and almost 5% this month.
Some data, however, reminded investors of potential weak spots in the world economy.
The mood among German consumers deteriorated unexpectedly heading into January, a survey showed, suggesting that household spending in Europe's largest economy could weaken at the beginning of next year.
Sterling was last trading at $1.3048, up 0.32% on the day after suffering a sharp reversal that left it facing its worst weekly fall since late 2017 of about 2%.
The pound slipped overnight to below $1.30, a dramatic drop from a 19-month peak of $1.3514 after British Prime Minister Boris Johnson used his sweeping election victory last week to revive the risk of a hard Brexit.
Britain will leave the EU at the end of January and has set December 2020 as a hard deadline to reach a trade agreement.
The dollar index rose 0.3%, with the euro down 0.42% to $1.1073. The Japanese yen weakened 0.08% versus the greenback at 109.47 per dollar.
Oil prices fell but were set for a third straight week of gains after the easing of the U.S.-China trade dispute boosted investor confidence and the outlook for global economic growth.
Brent was down 71 cents at $65.83 a barrel, while West Texas Intermediate crude slid 91 cents to $60.27 a barrel.
Gold clung to a narrow $5 range. Spot gold dropped 0.2% to $1,476.44 an ounce.
Additional reporting by Tom Wilson in London; Editing by Alex Richardson and Dan Grebler