* U.S. stock indexes on track for third month of gains
* Treasury prices fall on encouraging April spending data
* Dollar index rises near 2-month peaks amid rate-hike view
* U.S. oil futures climb as summer driving season starts
(Updates market action, change dateline, previous LONDON)
By Richard Leong
NEW YORK, May 31 (Reuters) - U.S. government bond prices
fell on Tuesday on upbeat consumer spending data that support
the view of a possible U.S. rate increase, while the dollar
edged up near a two-month peak against a basket of currencies.
U.S. stocks were flat to lower, shaving their monthly gains
in May. Oil futures rose on expected gasoline demand for summer
driving, while gold rebounded from 3-1/2 month low on the
stronger dollar and bets on a looming U.S. rate hike.
"Chances are the Fed will go (with a rate hike) in the
coming months if the economy holds up," said Ellis Phifer,
senior market strategist at Raymond James in Memphis.
On Friday, Fed Chair Janet Yellen said the U.S. central bank
should hike rates "in the coming months" if economic growth
accelerates and the labour market improves further.
Data suggested the world's largest economy has recovered
from a weak first quarter, led by a surprisingly strong 1
percent rise in personal consumption in April, but sluggish
exports and capital investments would limit a pickup in business
activity.
In midday trading, The Dow Jones industrial average .DJI
fell 64.47 points, or 0.36 percent, to 17,808.75, the S&P 500
.SPX declined 2.12 points, or 0.1 percent, to 2,096.94 and the
Nasdaq Composite .IXIC rose 9.36 points, or 0.19 percent, to
4,942.87.
U.S. stocks were on track for a third straight month of
gains, which has not happened in two years.
U.S. and U.K. markets had been closed on Monday for local
holidays.
The FTSEurofirst 300 index .FTEU3 index fell 0.8 percent
after German carmaker Volkswagen VOWG_p.DE reported
first-quarter earnings, but it was on course for its biggest
monthly gain since November.
Earlier Tuesday, Tokyo's Nikkei .N225 ended up 1 percent
for a monthly gain of 3.4 percent.
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 45 nations, fell 0.1 percent, to 402.66.
While global stocks are set for monthly gains, U.S.
government debt was on track for losses on expectations of a
possible U.S. rate increase.
Benchmark U.S. 10-year Treasury notes US10YT=RR were down
6/32 in price for a yield of 1.856 percent, up 2 basis points
from late Friday.
On the other hand, German 10-year Bund yield DE10YT=RR was
0.152 percent, down 1 basis point on the day.
In currency markets, the dollar index .DXY , which tracks
the greenback against a basket of six major currencies, rose
0.25 percent at 95.757, below a two-month high of 95.968 set on
Monday. It was on track for a 2.7 percent gain for the month,
its best in six months.
In commodities trading, U.S. crude futures rose on rising
gasoline demand during summer driving season, although
international fuel markets were weighed down by rising output in
the Middle East.
U.S. crude CLc1 was last up 53 cents, or 1.07 percent, at
$49.86 per barrel, while Brent crude LCOc1 was last up 9
cents, or 0.18 percent, at $49.85 a barrel.
Spot gold prices XAU= rose $8.45 or 0.70 percent, to
$1,213.65 an ounce.