* Push by Republicans for 3-month debt limit increase buoys markets * MSCI world share index rises to highest since May 2011 * China growth data initially boosts global recovery outlook * Japan's yen drops vs dollar By Herbert Lash NEW YORK, Jan 18 (Reuters) - World equity markets and oil prices rebounded on Friday after U.S. House Republican leaders said they would seek to break a government budget impasse next week, while the yen was lower against the U.S. dollar ahead of potential asset purchases by the Bank of Japan. Brent and U.S. crude futures rose in choppy trading, reacting to news that the House of Representatives will consider a bill to raise the U.S. debt ceiling enough to allow the country to pay its bills for another three months. Stocks on Wall Street pared losses on news of the new Republican strategy. Earlier, U.S. stocks had faltered on a survey that showed U.S. consumer sentiment at its lowest in over a year in January and a disappointing earnings outlook from chipmaker Intel. The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment came in at 71.3, down from 72.9 the month before. The index was at its lowest since December 2011. "It's a disappointing figure and helped put pressure on risky assets," said Greg Moore, a currency strategist at TD Securities in Toronto. "Markets for the last two weeks have been grinding higher, without much fundamentals backing it up. So this is a reality check. But it's still fairly early in the year and things could change," he said. U.S. Treasury debt prices extended modest gains. The U.S. benchmark 10-year Treasury note ticked up 11/32 in price to yield 1.8453 percent. Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington said the consumer confidence numbers would be closely scrutinized, given the still-uncertain impact of higher payroll taxes on the consumer. "This is a big miss and could mark the beginning of a downward trend in sentiment and in spending," Esiner said. The Dow Jones industrial average was up 6.32 points, or 0.05 percent, at 13,602.34. The Standard & Poor's 500 Index was up 0.16 points, or 0.01 percent, at 1,481.10. The Nasdaq Composite Index was down 8.23 points, or 0.26 percent, at 3,127.78. Disappointing economic data in the UK helped pushed European shares downward. The FTSEurofirst 300 index of top shares closed 0.16 percent lower at 1,163.64. China reported that its economy grew at a slightly faster-than-expected 7.9 percent in the fourth quarter of 2012, a clear sign it has avoided a sharp economic slowdown, though the annual growth rate was its weakest in 13 years. The China data came on top of strong U.S. labor and housing market reports on Thursday, providing fresh impetus to a broad rally in equities, precious metals and commodities since the start of the year. MSCI's index of leading world shares hit its highest level since May 2011 at 351.70, but later gave back some gains to trade up at 351.47. Spot gold retreated $2.11 to $1,685.10 an ounce. Oil supply disruption fears were reinforced by the Islamic militant attack and hostage-taking at a gas plant in Algeria, a member of the Organization of Petroleum Exporting Countries. Lack of progress from another round of talks between the United Nations' nuclear agency and Iran about Tehran's nuclear program also pushed prices higher. Brent crude rose 81 cents at $111.91 barrel, while U.S. oil rose 7 cents at $95.56 a barrel. Sources familiar with the BOJ's thinking told Reuters the central bank, under relentless pressure from Japan's Prime Minister Shinzo Abe, will consider making an open-ended commitment to buy assets until 2 percent inflation is in sight. "This is a big deal," said Jens Nordvig, global head of currency strategy at Nomura Securities in New York. "But as always from a trading perspective, it matters greatly what is already priced," he added. The euro last traded 0.2 percent lower against the yen at 119.96 yen, down from 120.70 earlier - its highest since May 2011. The euro was also down against the dollar, falling 0.36 percent on the day to $1.3327.