Dollar slips, Treasury yields dip after soft U.S. data

NEW YORK (Reuters) - The dollar hit a more than three-month low against a basket of currencies while U.S. Treasury yields eased on Wednesday as weaker-than-expected U.S. retail sales supported the view the Federal Reserve may be raising rates later rather than sooner.

Those views bolstered U.S. stocks in early trading before major stock indexes turned flat.

U.S. retail sales were flat in April as households cut back on purchases of automobiles and other big-ticket items, indicating the economy was struggling to rebound.

"The data puts into question the Fed's notion that the weak first-quarter data was transitory," said Adam Sarhan, chief executive of Sarhan Capital in New York.

The Fed has said it will raise rates only when data points to a strengthening economy. Growth in the first-quarter slowed to a crawl as a strong dollar, harsh winter and a steep fall in oil prices hurt profits and discouraged consumers from spending.

Global equity markets also were helped by signs of improved economic growth in France and relatively successful sales of the European government debt at the heart of two weeks of bond market turmoil.

The best French growth reading in two years added to signs, including from Spain, that some of Europe's weaker southern economies are picking up. Germany missed forecasts, however.

Germany and Italy both successfully sold government debt, and yields on the secondary market fell, but traders were sceptical as to whether this meant three weeks of turmoil on the world's major bond markets was over.

MSCI's all-country world index <.MIWD00000PUS> of stock performance in 46 countries was up 0.3 percent.

The Dow Jones industrial average <.DJI> fell 8.01 points, or 0.04 percent, to 18,060.22, the S&P 500 <.SPX> gained 0.1 points to 2,099.22 and the Nasdaq Composite <.IXIC> added 7.82 points, or 0.16 percent, to 4,984.01.

U.S. benchmark 10-year notes were last up 7/32 in price to yield 2.24 percent, down from 2.26 percent late on Tuesday.

A dramatic selloff in German Bunds has helped push Treasury yields higher in recent weeks.

German 10-year bond yields, which have jumped around half a percentage point from record lows hit in mid-April, dipped to 0.69 percent.

The dollar index, which measures the greenback against a basket of six major currencies, hit a more than three-month low of 93.667 <.DXY>.

Expectations of further monetary stimulus in China kept Asian markets in positive territory. The People's Bank of China cut its benchmark one-year lending and deposit rates by 25 basis points on Sunday, the third cut in six months. Economists expect more cuts to follow.

Brent crude oil added to its overnight gains as the weaker dollar lifted commodities denominated in the currency, and after OPEC raised slightly its forecast for world oil demand growth.

Brent was up 14 cents at $67.01 a barrel after rallying 3 percent on Tuesday, while U.S. crude was down 6 cents at $60.69.

(Additional reporting by Tanya Agrawal, Sam Forgione, Patrick Graham and John Geddie; Editing by Jeremy Gaunt and Nick Zieminski)

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