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GLOBAL MARKETS-U.S. yields rise in auctions as stocks sink; dollar recovers

* World stocks struggle, Wall Street falls

* U.S. Treasury yields rise with first of week's debt auctions

* U.S. dollar rises, pressuring gold and Brent crude prices

* India rupee skids amid state-run bank fraud concerns (Adds Wall Street close; updates throughout)

NEW YORK, Feb 20 (Reuters) - U.S. yields rose in government debt auctions on Tuesday and yields on short-term bills hit their highest levels since September 2008, bolstering the U.S. dollar but helping end a six-session rebound in world stocks.

Wall Street stocks were also hurt as Walmart, the world's biggest brick-and-mortar retailer, reported a lower-than-expected profit, dragging down other retailers.

Shares of Walmart Inc slumped 10.2 percent after the company reported quarterly results that showed a sharp drop in online sales growth during the holiday period.

Shares of Target and Costco Wholesale also fell, dragging the S&P consumer staples index down 2.3 percent.

The Dow Jones Industrial Average fell 254.63 points, or 1.01 percent, to 24,964.75, the S&P 500 lost 15.96 points, or 0.58 percent, to 2,716.26, and the Nasdaq Composite dropped 5.16 points, or 0.07 percent, to 7,234.31.

World equity markets also sank, with the MSCI gauge of stocks across the globe shedding 0.47 percent.

Emerging market stocks lost 0.55 percent, and Asian stocks were also subdued.

MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.41 percent lower, while Japan's Nikkei lost 1.01 percent.

European shares held steady, supported by softer domestic currencies. The pan-European FTSEurofirst 300 index rose 0.56 percent.

Investors looking to the greenback shrugged off worries about the U.S. budget deficit, focusing on large U.S. government debt auctions this week and sending the dollar higher.

U.S. Treasury yields rose, with the benchmark 10-year yield hovering near a four-year peak as investors made room for this week's deluge of $258 billion of government debt supply.

Tuesday's wave of supply, which comprised of $151 billion in bills and $28 billion in two-year fixed-rate notes, fetched mixed reception from investors.

Concerns about more interest rate hikes from the Federal Reserve and the possibility of further increases in federal borrowing may keep a lid on demand at this week's auctions, they said.

"I suspect, however, that when the next economic downturn eventually comes, tax receipts fall and the deficit widens that Treasury spreads will widen further," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

Benchmark 10-year notes last fell 4/32 in price to yield 2.8896 percent.

The Treasury also sold $55 billion in one-month bills at an interest rate of 1.380 percent, and $28 billion in two-year fixed-rate debt at a yield of 2.255 percent, the highest level since August 2008.

The dollar index, which tracks the greenback against a basket of other key world currencies, rose 0.7 percent, continuing its rebound from three-year lows. The euro was last 0.58 percent lower at $1.2335.

EMERGING PRESSURE

The dollar's rebound also put most emerging market currencies under pressure.

Growing concerns about fraud at India's second-largest state-run bank sent the rupee to a near three-month low.

U.S. crude rose 0.1 percent to $61.61 per barrel, hitting a near two-week high amid inventory declines, while Brent was last at $65.09, down 0.88 percent on the day, under pressure from the stronger dollar.

The dollar's rebound also weighed on gold prices, which dropped for a third session.

Spot gold dropped 1.2 percent to $1,330.61 an ounce.

(Reporting by Hilary Russ in New York; Additional reporting by Saqib Iqbal Ahmed, Richard Leong, Chuck Mikolajczak and Stephanie Kelly in New York and Marc Jones and Eric Onstad in London; Editing by Leslie Adler)