Dollar slips, stocks inch up after soft U.S. data

NEW YORK (Reuters) - The dollar index hit its highest in more than three months while global stock indexes edged up on Wednesday as weaker-than-expected U.S. retail sales bolstered confidence the Federal Reserve will hold off raising rates soon.

The S&P 500 was up slightly following the data, which showed 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.

MSCI's all-country world index <.MIWD00000PUS> of stock performance in 46 countries was up 0.4 percent, also helped by some signs of improved growth in Europe.

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 skeptical as to whether this meant three weeks of turmoil on the world's major bond markets was over.

The Dow Jones industrial average <.DJI> fell 1.84 points, or 0.01 percent, to 18,066.39, the S&P 500 <.SPX> gained 1.42 points, or 0.07 percent, to 2,100.54 and the Nasdaq Composite <.IXIC> added 8.49 points, or 0.17 percent, to 4,984.68.

U.S. benchmark 10-year notes traded both sides of unchanged in a volatile session, but were last down 2/32 in price to yield 2.27 percent, up 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 have jumped around half a percentage point from record lows hit in mid-April.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 1 percent after hitting a more than three-month low <.DXY>.

Expectations of further monetary stimulus in China lifted Asian markets. 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.

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 $1.22 at $68.08 a barrel after rallying 3 percent on Tuesday, while U.S. crude was up 53 cents at $61.28.

(This story has been corrected in first paragraph to say that dollar index is at lowest, not highest, in more than 3 months)

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

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