* Political risk hits Italy's stocks, bonds
* Dollar gains for fifth straight session
* U.S. 10-year debt yield declines from seven-year peak
* Crude pauses after reaching 2014 high (Updates with close of U.S. markets)
NEW YORK, May 18 (Reuters) - Wall Street's benchmark S&P 500 stock index dipped on Friday on persistent trade concerns, while U.S. 10-year Treasury yields declined from a near seven-year peak after a burst higher this week.
In Europe, political uncertainty in Italy weighed on stocks and bonds as well as on the euro. The U.S. dollar rose for a fifth straight session against a basket of currencies.
Investors were digesting moves from earlier in the week, when the benchmark 10-year U.S. Treasury note yield broke above 3.1 percent and oil topped $80 a barrel. On Friday, oil prices settled lower but benchmark Brent logged a sixth week of gains.
Trade was on the top of investors' minds as U.S. President Donald Trump said he was determined to stop China from "taking our jobs, taking our money" as U.S. and Chinese negotiators met for a second day to try to avert a tariff war. On Thursday, the top U.S. trade official poured cold water on the prospect of an imminent breakthrough in talks to rework the North American Free Trade Agreement (NAFTA).
"The driver is continued concerns about trade and the seeming lack of progress on both NAFTA and the negotiations with China," said Kate Warne, investment strategist with Edward Jones in St. Louis.
"I think thats why you are getting markets that are caught and not moving much because no one is certain about which way any of these will go, and whether theres good news or whether they need to worry more about what happens next."
On Wall Street, the Dow Jones Industrial Average rose 1.11 points to 24,715.09, the S&P 500 lost 7.16 points, or 0.26 percent, to 2,712.97 and the Nasdaq Composite dropped 28.13 points, or 0.38 percent, to 7,354.34.
A disappointing report by Applied Materials weighed on chip stocks.
A volatile week for Italian markets continued as two anti-establishment parties pledged to increase spending in a deal to form a new coalition government.
Yields on Italy's 10-year bond rose to their highest in more than seven months, while the country's stocks slumped 1.5 percent.
The euro was down 0.23 percent to $1.1766, for its fifth session of declines.
"The possibility of a eurosceptic government in Rome is shaking investor confidence ... At this point a larger fiscal deficit and greater bond issuance (in Italy) does seem likely," said David Madden, a strategist at CMC Markets.
The pan-European FTSEurofirst 300 index lost 0.29 percent, but posted gains for an eighth straight week.
MSCI's gauge of stocks across the globe shed 0.26 percent.
U.S. 10-year Treasury yields declined from a near seven-year high as buyers emerged following a bond market selloff earlier this week spurred by worries about growing inflation and government borrowing.
Benchmark 10-year notes last rose 13/32 in price to yield 3.0633 percent, from 3.109 percent late on Thursday.
"It's a grind higher in yields," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. "I think the data are still pretty good. They make people think the economy is doing well."
The dollar index rose 0.22 percent.
Oil prices fell, but Brent crude marked a sixth straight week of gains, boosted by plummeting Venezuelan production, strong global demand and looming U.S. sanctions on Iran. The benchmark on Thursday broke through $80 for the first time since November 2014.
U.S. crude settled down 0.3 percent at $71.28 a barrel, while Brent settled at $78.51, down 1 percent.
(Additional reporting by Richard Leong in New York and Tom Finn in London; editing by Chizu Nomiyama and James Dalgleish)