* U.S. stock indexes on track for third month of gains
* Treasuries pare losses as weak data stoke safe-haven bids
* Dollar index rises to near 2-month peaks on rate hike view
* U.S. oil futures give back gains tied to driving demand
(Updates market action, adds quotes)
By Richard Leong
NEW YORK, May 31 (Reuters) - U.S. stock prices fell on
Tuesday on weaker-than-expected economic data, while
expectations of a possible Federal Reserve interest rate
increase lifted the dollar to near a two-month high against a
basket of currencies.
The drop on Wall Street stoked safe-haven bids for gold and
less riskier U.S. and German government debt. Oil futures faded
into the red after rising earlier on expected U.S. gasoline
demand for summer driving.
The S&P 500 index .SPX is poised for a third straight
month of gains in May, but it may struggle to post further gains
due to the risk of a Fed rate increase and worries about
Britain's June 23 referendum on European Union membership.
"Equities will be in sideways trading going into the middle
of the year with a possible rate hike and the vote in the UK,"
said Bill Northey, chief investment officer for U.S. Bank's
private client group in Helena, Montana.
U.S. interest rate futures implied traders saw a 28 percent
chance the Fed would raise rates next month and a 61 percent
chance it would do so at its July policy meeting, according to
CME Group's FedWatch program. FFM6 FFN6
Worries about Britain's economy grew after two polls showed
those campaigning for an exit from the EU had taken the lead.
Sterling fell to one-week lows against the dollar and euro.
GBP/
The dollar index .DXY , which tracks the greenback against
a basket of six major currencies, rose 0.3 percent to 95.842,
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 performance in
six months.
"Brexit" has complicated traders' assessment of the
likelihood of a Fed rate increase because a British vote to
leave the EU could result in market turmoil and pose further
drag on a sluggish global economy.
OIL PRICES DIP
U.S. personal income and spending data on Tuesday suggested
the economy is rebounding from a weak first quarter, led by a
surprisingly strong 1 percent rise in personal consumption in
April, but dismal readings on consumer confidence and Midwest
manufacturing raised worries the recovery may be short-lived.
The Dow Jones industrial average .DJI was down 118.44
points, or 0.66 percent, to 17,754.78, the S&P 500 .SPX was
down 6.48 points, or 0.31 percent, to 2,092.58 and the Nasdaq
Composite .IXIC was down 1.76 points, or 0.04 percent, to
4,931.74.
U.S. and British markets were closed on Monday for local
holidays.
The FTSEurofirst 300 index .FTEU3 index ended down 0.8
percent, but still booked its biggest monthly gain since
November. .EU
Earlier on Tuesday, Tokyo's Nikkei .N225 ended up 1
percent for a monthly gain of 3.4 percent. .T
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 45 nations, fell 0.1 percent to 402.66.
As stocks slipped into negative territory, U.S. Treasuries
pared initial losses.
The yield on benchmark U.S. 10-year Treasury notes
US10YT=RR was little changed at 1.839 percent after rising as
much as 5.5 basis points from Friday. US/
In commodities trading, U.S. crude CLc1 settled down 23
cents, or 0.47 percent, at $49.10 a barrel, while Brent crude
LCOc1 settled down 7 cents, or 0.24 percent, at $49.69.
Spot gold prices XAU= rose $11.71, or 0.97 percent, to
$1,216.91 an ounce.