(Reuters) - Italian Valentino Rossi won the Grand Prix of Catalunya on Sunday after a thrilling duel with Spaniard Marc Marquez that ended with a handshake between MotoGP's bitter rivals.

Rossi's Yamaha team mate and reigning champion Jorge Lorenzo lost the overall lead to Honda's Marquez after being knocked off his bike by Ducati's Andrea Iannone, the man he will replace next year, on lap 17.

"It's a great victory, one of the best of my career," declared 37-year-old Rossi, who started fifth at Barcelona's Circuit de Catalunya and dropped to seventh before fighting back to take the lead on lap seven.

It was his second victory of the season, 88th in MotoGP and 114th of his grand prix career.

Marquez, who traded the lead with Rossi over the closing laps, has 125 points to Lorenzo's 115 and Rossi's 103 after seven rounds.

"I was struggling a lot with the front (tire)," said Marquez, who ended last season as Rossi's arch-enemy after the pair clashed on track and the Italian accused him of helping compatriot Lorenzo win the title to keep it in Spanish hands.

"I had a few moments, in the end I was on the limit. I tried but when I saw also Lorenzo out the mentality changed a little bit.

"The important thing is that we had a great battle with Valentino and I think the people enjoyed it," added the Spaniard, whose handshake with Rossi in the finish area ended months of glacial relations.

Both riders acknowledged it was the right thing to do on a weekend overshadowed by the death of Spanish Moto2 rider Luis Salom on Friday.

The Lorenzo incident drew a furious response from Yamaha team boss Lin Jarvis, who slammed Iannone for dangerous riding.

"I am appalled by Iannone's move," he said. "He hasn't learned his lesson from what he did earlier this season where he took out his own team mate. This do-or-die suicide move on Lorenzo is impossible."

The stewards agreed, sending Iannone to the back of the grid for the next race, the Dutch TT at Assen on June 26, and imposing two penalty points.

Lorenzo was the early leader on a scorching afternoon but was fighting in fifth place when the collision happened.

Rossi, Marquez and third placed Spaniard Dani Pedrosa dedicated their races to Salom and wore T-shirts on the podium declaring 'Always in our hearts". No champagne was sprayed.

(Reporting by Alan Baldwin, editing by Toby Davis and Clare Lovell)