GLOBAL MARKETS-Treasury yields rise on spending data, dollar gains

* U.S (Other OTC: UBGXF - news) . 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 fell 64.47 points, or 0.36 percent, to 17,808.75, the S&P 500 declined 2.12 points, or 0.1 percent, to 2,096.94 and the Nasdaq Composite 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 index fell 0.8 percent after German carmaker Volkswagen (LSE: 0P6N.L - news) reported first-quarter earnings, but it was on course for its biggest monthly gain since November.

Earlier Tuesday, Tokyo's Nikkei ended up 1 percent for a monthly gain of 3.4 percent.

The MSCI world equity index, 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 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 was 0.152 percent, down 1 basis point on the day.

In currency markets, the dollar index, 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 (Other OTC: ITGL - news) 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 was last up 53 cents, or 1.07 percent, at $49.86 per barrel, while Brent crude was last up 9 cents, or 0.18 percent, at $49.85 a barrel.

Spot gold prices rose $8.45 or 0.70 percent, to $1,213.65 an ounce. (Additional reporting by Anirban Nag, Sudip Kar-Gupta and Jemima Kelly in London; Editing by Ralph Boulton and Nick Zieminski)