U.S. yields touch five-month highs; stocks, dollar fall

By Richard Leong

NEW YORK (Reuters) - Long-term U.S. Treasury yields rose to their highest of the year on Tuesday as investors reassessed the chances of a September interest rate hike by the U.S. Federal Reserve, while global stock prices fell on uneasiness about U.S. and Asian growth.

The stand-off between Greece and its creditors also curbed appetite for equities.

Oil prices reached fresh 2015 highs as protests disrupted exports to an eastern Libyan port, while gold gained on safety bids stemming from anxiety in other markets.

The two-week selloff in Treasuries, German Bunds and British gilts stemmed from a host of factors including heavy debt supply, less pessimism about Europe, and easing downward pressure on U.S. and European inflation.

"You are seeing the worst of disinflation over. You are also seeing oil prices stabilizing," said Bill Stone, chief investment strategist at PNC Asset Management Group in Philadelphia.

There was no major shift in investor conviction on whether the Federal Reserve would raise interest rates at its September meeting, but a less gloomy global backdrop caused some investors to consider such a move is more likely than two weeks ago.

The dollar's fall suggested doubts persist about a September Fed rate hike in the wake of mixed U.S. data. They showed the United States posted its biggest monthly trade gap in nearly 6-1/2 years in March, while a private gauge on the services sector in unexpectedly improved in April.

In mid-afternoon U.S. trading, the Dow Jones industrial average fell 114.34 points, or 0.63 percent, to 17,956.06, the S&P 500 decreased 20.44 points, or 0.97 percent, to 2,094.05 and the Nasdaq Composite declined 71.63 points, or 1.43 percent, to 4,945.30.

The MSCI world equity index , which tracks shares in 45 nations, fell 0.79 percent, to 435.58.

The pan-European FTSEurofirst 300 equity index shed 1.6 percent at 1,555.46, erasing an earlier gain spurred by an almost 7 percent jump in UBS shares.

Tokyo's Nikkei <.N225> eked out a 0.06 gain despite data from China, Taiwan and Japan which showed factory activity contracting.

While worries intensified about Asia's biggest economies, the European Commission said euro zone economic growth would be stronger than previously expected this year.

Prices of major government bonds declined in an ongoing market pullback stemming from less pessimism about Europe. Safe haven German Bunds' 10-year yields touched 0.535 percent, the highest since January.

This has also led investors to dump U.S. Treasuries, sending 30-year bond yield to 2.934 percent, the highest in five months. The 30-year yield was last 2.905 percent.

In the currency market, the mixed U.S. data spurred selling in the dollar, especially against the euro. The single currency was up 0.46 percent at $1.1195.

Brent crude was last up $1.10, or 1.66 percent, at $67.55 a barrel. U.S. crude settled up $1.47 at $60.

Spot gold prices rose $6.1 or 0.51 percent, to $1,193.80 an ounce.

(Reporting by Lionel Laurent, Sudip Kar-Gupta in London; Editing by Nick Zieminski)