GLOBAL MARKETS-World stocks post best week in 2 years, dollar climbs

(Adds close of U.S. markets)

* Indictment over alleged Russian election meddling cools market

* Stocks rally for sixth straight session

* Euro zone, Treasury bond yields fall

* Crude rises on equity rebound and weak dollar

By Herbert Lash

NEW YORK, Feb 16 (Reuters) - The dollar rose and stocks around the globe rallied for a sixth straight session on Friday to post their best week in more than two years, but a U.S. indictment over alleged Russian meddling in the 2016 presidential election cooled gains on Wall Street.

The 37-page indictment of a Russian internet agency filed by Special Counsel Robert Mueller described a conspiracy with the aim of supporting Donald Trump and sowing discord in the U.S. political system.

Wall Street turned south on news of the indictment but soon rebounded as the fundamental story has not changed, said Ben Phillips, chief investment officer of EventShares, referring to a strong corporate earnings outlook and robust economy.

Analysts continue to underestimate the pace of global growth, which has led more companies to meet or beat analysts' earnings expectations than in any quarter in 20 years, according to calculations earlier this week by Credit Suisse.

Fourth-quarter results for European companies in the STOXX 600 index are expected to increase 14.6 percent from a year ago, while the blended earnings growth estimate for the S&P 500 is 15 percent, Thomson Reuters I/B/E/S data show.

Since a market rout was sparked two weeks ago on fears of rising inflation and its impact on interest rates, a tug of war has ensued between investors seeking safety in bonds or betting a nine-year bull market in stocks is still alive.

Investors also are concerned about how the Federal Reserve will deal with still-low inflation without killing an economy and inflate asset bubbles, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

"That's a very difficult spot. The market recognizes that challenge and is wondering how the Fed will address it," he said.

But investors are getting comfortable with the idea that growth is sufficient enough to withstand the expected rate increases the Fed has projected this year as well as signs of rising inflation, Arone said.

MSCI's index of stock markets across the globe rose 0.26 percent to gain 4.3 percent for the week, the best weekly performance since December 2011.

Stocks were poised for their best week in six years until news of the special counsel indictment pared some gains.

The pan-European FTSEurofirst 300 index of leading regional shares rose 1.11 percent to 1,491.71.

On Wall Street, the Dow Jones Industrial Average closed up 19.01 points, or 0.08 percent, to 25,219.38. The S&P 500 gained 1.02 points, or 0.04 percent, to 2,732.22 and the Nasdaq Composite dropped 16.97 points, or 0.23 percent, to 7,239.47.

Investors are trying to determine whether the market is in an overdue correction or the beginning of something worse, Arone said.

"It looks like this week they're comfortable about uncertainty and the risks that are associated with it, and stocks are moving higher based on fundamentals," he said.

U.S. Treasury prices rose as investors bought back bonds after a sell-off earlier in the week as investor jitters over rising inflation raised the possibility the Federal Reserve may hike interest rates at a faster pace than expected this year.

Borrowing costs across the euro area fell, though the prospect of higher inflation and a move toward tighter monetary policy from major central banks weighed on sentiment across world bond markets.

Short-dated bond yields in Germany, the euro zone's benchmark bond issuer, have risen by about 7 basis points this week and are set for their biggest weekly rise in eight weeks.

Benchmark 10-year U.S. Treasury notes rose 6/32 in price to push their yield down to 2.8713 percent.

The dollar rose on the day but remained on track to post its biggest weekly loss in nine months as negative sentiment offset any support the greenback had from higher Treasury yields.

The dollar index, tracking a basket of major currencies, rose 0.58 percent, with the euro down 0.81 percent to $1.2404. The Japanese yen weakened 0.18 percent versus the greenback at 106.33 per dollar.

Oil prices rose, as the rebound in the global equities market and the dollar's recent weakness supported their recovery from last week's slide.

U.S. West Texas Intermediate crude for March delivery rose 34 cents to settle at $61.68 a barrel. Brent settled up 51 cents at $64.84.

U.S. April gold futures settled up $0.9, or 0.1 percent, at $1,356.20 per ounce.

(Reporting by Herbert Lash; Editing by Nick Zieminski and Chris Reese)