Updates prices after U.S. market close

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON, May 11 (Reuters) - U.S. equity indexes inched ahead to record closing highs while the dollar edged higher on Monday, as investors awaited a meeting between U.S. President Donald Trump and Chinese President Xi Jinping.

Oil prices rallied as Trump said the U.S. ceasefire with Iran was "on life support," after dismissing Tehran's response to a U.S. peace proposal as "stupid." His remarks stoked worries that ​the 10-week-old conflict will drag on, paralyzing shipping through the Strait of Hormuz.

Iran's response had focused on ending the war on all fronts and Tehran demanded compensation for war damage, emphasized its sovereignty over the Strait of Hormuz, and called on the U.S. to end its naval blockade, guarantee no further attacks, lift sanctions and remove a ban on Iranian oil sales.

But, with the Middle East expected to be a key part of the agenda this week at Trump and Xi's first face-to-face talks in more than six months, Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said that investors were cautiously hopeful for some progress toward peace.

"It's all about the strait and when it's going to open," said Wren. "There's some optimism that China will have some influence in resolving the strait issue."

On Wall Street, the S&P 500 .SPX rose 13.91 points, or 0.19%, to 7,412.84 and the Nasdaq Composite .IXIC rose 27.05 points, or 0.10%, to 26,274.13, record closing highs for both. The Dow Jones Industrial Average .DJI rose 95.31 points, or 0.19%, to 49,704.47, still shy of its February 10 record close.

MSCI's gauge of stocks across the globe .MIWD00000PUS rose 2.38 points, or 0.22%, to 1,108.01. Earlier the pan-European STOXX 600 .STOXX index closed up 0.11%.

In currencies, the dollar retreated from session highs after Trump's rebuff of Iran's response kept concerns about an extended war intact.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.05% to 97.96, with the euro EUR= down 0.06% at $1.1777.

Against the Japanese yen JPY=, the dollar strengthened 0.37% to 157.23.

Sterling GBP= weakened 0.16% to $1.361 as British Prime Minister Keir Starmer attempted to quell a rebellion within his ruling Labour party following a mauling in last week's local elections.

In energy markets, oil prices settled up nearly 3% after Trump's comments fueled supply fears as the Strait of Hormuz stayed largely closed with no clear end in sight for the war.

U.S. crude CLc1 settled up 2.78%, or $2.65 at $98.07 a barrel. Brent LCOc1 rose to $104.21 per barrel, up 2.88%, or $2.92 for the day.

U.S. Treasury yields rose as rising oil prices stoked inflation worries.

The yield on benchmark U.S. 10-year notes US10YT=RR rose 4.6 basis points to 4.41%, from 4.364% late on Friday. The 30-year bond US30YT=RR yield rose 3.6 basis points to 4.9835%.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.9 basis points to 3.952%.

Gold prices reversed course to rise in volatile trading on Monday, as investors assessed developments in U.S.-Iran diplomacy and waited for key U.S. inflation data due later this week.

Spot gold XAU= rose 0.44% to $4,735.39 an ounce. U.S. gold futures GCc1 rose 0.15% to $4,727.70 an ounce.