GLOBAL MARKETS-U.S. yields up; European shares, dollar advance
* Treasury bond yields highest in 10 days
* Wall Street lower as homebuilders come under pressure
* Dollar rallies after retail sales data; gold falls
* European shares hit 2-1/2-month high on optimism about economy
NEW YORK, Aug 13 (Reuters) - U.S. Treasuries yields rose and the dollar climbed to one-week highs on Tuesday after a gauge of U.S. consumer spending rose at its fastest pace in seven months. Wall Street stocks slipped, while European shares rose to 2-1/2-month highs after data pointed to an improving economic outlook across the euro region, though the optimism failed to carry over to Wall Street. World equities markets were little changed. The benchmark 10-year U.S. Treasury note was down 24/32, its yield at 2.7063 percent. Strong U.S. data will encourage the Federal Reserve to trim its monthly purchases of about $85 billion in bonds, perhaps as early as September. Such a move will boost U.S. bond yields and bolster the appeal of dollar-denominated assets. "For the next five and a half weeks every U.S. statistic will be measured by its impact on the September 18th (Federal Open Market Committee) decision," said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey. "By that standard today's number should keep the Fed on track to curtail quantitative easing purchases in September." MSCI's all-country world index, a measure of 45 equity markets around the world, edged up 0.1 percent. The Dow Jones industrial average dropped 24.27 points, or 0.16 percent, at 15,395.41. The Standard & Poor's 500 Index was down 1.12 points, or 0.07 percent, at 1,688.35. The Nasdaq Composite Index was down 3.62 points, or 0.10 percent, at 3,666.33. Consumer stocks, especially homebuilders, dragged on Wall Street. The group came under pressure as government bond rates rose, making mortgages less affordable. PulteGroup Inc was the biggest loser among consumer discretionary stocks, trading 2.6 percent lower at $15.30. "The general tone in markets is positive, but things are feeling a bit heavy," said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, who helps oversee $118 billion. "I think the next 5 percent move in markets will be down, while the next 10 percent move after that will be up." Europe's broad FTSEurofirst 300 index hit its highest level since May before pulling back to 1,236.50, up 0.5 percent on the day. U.S. retail sales outside of cars, gasoline and building materials rose 0.5 percent last month, the biggest gain since December. Overall retail sales rose 0.2 percent during the month, just below analysts' expectations. A jump in Germany's ZEW economic sentiment survey dovetailed with a rise in euro zone industrial output and the fastest rise in UK house prices in seven years, bolstering a renewed sense of optimism in the region. "It is not only Germany that is moving in the right direction," said Deutsche Bank economist Mark Wall. "There is a general improvement taking place in Europe and in the context of this being a debt crisis one shouldn't underestimate the importance of getting back to a position of growth... The $64,000 question is whether this is sustainable."
The dollar index, which measures the greenback versus a basket of six currencies, gained 0.6 percent to 81.804. The euro fell 0.4 percent to $1.3244, while the dollar rallied 1.1 percent to 97.98 yen. In Asia, Japanese shares jumped 2.6 percent and the yen fell after a media report that Prime Minister Shinzo Abe is considering a cut in corporate taxes to counter the pain of a planned sales tax increase. Brent crude oil rose toward $110 per barrel after oil exports from Libya fell to their lowest in two years, heightening supply worries ahead of scheduled cuts in output from fellow OPEC member Iraq. Brent crude oil futures for September were up 57 cents to $109.54 per barrel, while U.S. light crude oil slipped 14 cents at $105.97. Spot gold fell to $1,321 an ounce, retreating from a three-week high as the dollar strengthened. A new hike in Indian import taxes also undermined sentiment.