Bond yields rise, dollar climbs on U.S. data; stocks down

By Herbert Lash

NEW YORK (Reuters) - Government bond yields rose and the dollar advanced on Friday after improved factory activity in the U.S. Midwest and rising consumer sentiment sparked a move out of safe-haven assets amid rising jitters about the Federal Reserve's next move.

Global equity markets fell amid volatile trading on concerns the Fed may ease its stimulus program, a prime driver behind a strong rally in U.S. equities and stocks elsewhere in the world.

The benchmark S&P 500 index had gained about 3 percent in May and about 15 percent so far this year after repeatedly scaling record highs.

The dollar advanced after data showed Midwestern factory activity regaining speed, but U.S. consumer spending fell in April for the first time in almost a year and already low inflation declined further.

While the factory data added fuel to growing speculation the Fed may begin to taper asset purchases, the U.S. central bank's favorite gauge of inflation showed price rises well under its target rate, making a pullback less likely any time soon.

U.S. and German government debt prices reversed course and fell after the Institute for Supply Management-Chicago business barometer jumped to 58.7 from 49 in April, handily beating economists' expectations for a reading of 50.

The dollar rose against several key currencies and was headed for its eighth straight month of gains against the yen.

Investors and traders are grappling with whether the Fed, looking at a stronger economy, will choose to end its program as stocks and housing prices surge.

"If you get the hint or the idea that they're going to start to trim purchases then this is the volatility that's going to be created around it," said Sean Murphy, a Treasuries trader at Societe Generale in New York.

The Dow Jones industrial average was down 125.49 points, or 0.82 percent, at 15,199.04. The Standard & Poor's 500 Index was down 14.78 points, or 0.89 percent, at 1,639.63. The Nasdaq Composite Index was down 19.09 points, or 0.55 percent, at 3,472.21.

A Thomson Reuters/University of Michigan survey that showed greater optimism over the economic outlook and personal finances pushed U.S. consumer sentiment to its highest level in nearly six years in May initially helped stocks.

A measure of global equities, MSCI's all-country world equity index , fell 0.89 percent.

The benchmark 10-year U.S. Treasury note fell 10/32 in price to yield 2.1532 percent.

German Bund futures also retreated in rocky trade to end the session almost flat, down 2 ticks at 143.71.

In Europe, the FTSEurofirst 300 index leading regional shares finished 0.92 percent lower at 1,216.17.

The index rose 1.6 percent in May to record the best monthly winning streak in its 16-year history.

The euro fell to a session low of $1.2945 and was last at $1.2993, down 0.42 percent on the day.

The dollar rose 0.23 percent to 100.49 yen.

U.S. oil prices fell below $93 a barrel, extending losses after weak consumer spending data. Members of the Organization of Petroleum Exporting Countries agreed to leave their output target unchanged, as expected, with little impact on markets as a result.

Brent oil settled down $1.80 at $100.39 a barrel, and fell 1.93 percent during the month. U.S. crude oil fell $1.64 to settle at $91.97 a barrel, or 1.6 percent lower for the month of May.

(Additional reporting by Marc Jones in London; Editing by Dan Grebler and James Dalgleish)