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NEW YORK (Reuters) - U.S. government bond yields flirted with record lows, oil prices rallied and the dollar fell to a one-month low against the yen on Monday after weak U.S. retail sales data fed bets a faltering economy would prompt more stimulus from the Federal Reserve.
Wall Street stocks ended down, although Citigroup's better-than-expected earnings limited losses. The S&P 500 has fallen in seven of the last eight sessions, weighed by concerns about economic growth.
U.S. retail sales fell 0.5 percent in June, the third straight month of decline, as demand slumped for everything from cars and electronics to building materials, a sign the economic recovery is flagging.
Markets looked ahead to Federal Reserve Chairman Ben Bernanke's semiannual testimony before congressional panels on Tuesday and Wednesday. Investors will parse his words for clues about the possibility and timing of another round of stimulus.
"I think people have started to re-price more easing coming through from the Fed after the retail sales data," said Brian Kim, currency strategist at RBS Securities in Stamford, Connecticut.
Benchmark 10-year Treasury notes traded up 6/32 in price for a yield of 1.469 percent. Earlier, the 10-year yield touched 1.442 percent, matching the lowest level going back to the early 1800s last seen on June 1, according to data compiled by Reuters.
The 30-year bond yield touched a session low of 2.520 percent, within striking distance of a record low of 2.510 percent set on June 1.
Central banks from Europe, China and Brazil earlier this month cut interest rates to bolster fragile growth, underscoring growing worries about a slowing global economy. But some analysts said Bernanke is likely to remain non-committal.
"He will definitely leave the door open to more stimulus. However, he won't provide any clear-cut signals on the timing, which is what investors really want to hear," said Kathy Lien, managing director of FX Strategy for BK Asset Management in New York.
U.S. stocks ended lower. The Dow Jones industrial average .DJI closed down 49.88 points, or 0.39 percent, at 12,727.21. The Standard & Poor's 500 Index .SPX fell 3.14 points, or 0.23 percent, to finish at 1,353.64. The Nasdaq Composite Index .IXIC was down 11.53 points, or 0.40 percent, at 2,896.94.
The MSCI world equity index .MIWD00000PUS slipped 0.01 percent to 309.38, recovering early losses. European shares rose 0.1 percent to end at 1,043.71 .FTEU3.
The euro hit a 3-1/2-year low against sterling as investors fretted about the delay in making bailout funds accessible to troubled euro zone states.
Germany's Constitutional Court said on Monday it would not rule until September 12 on whether the euro zone's bailout fund -- the European Stability Mechanism -- and planned changes to the region's budget rules are compatible with German law.
Europe's common currency fell as low as $1.2173, not far from a two-year low of around $1.2160 hit last week, before recovering to trade 0.2 percent higher at $1.2279.
It fell to 78.32 pence against sterling, its weakest since late 2008. The euro also dropped to 96.14 yen, its lowest since June 1, and hit a record low against the Canadian dollar.
The euro was also hurt by a report suggesting a change in the European Central Bank's stance on how some bondholders could be treated under Spain's bank bailout.
The dollar slid 0.5 percent to 78.81 yen, having hit 78.67, the weakest since mid-June.
In commodities trading, oil prices rose on hopes for more stimulus, especially from China after China's Premier Wen Jiabao said Beijing would step up its efforts to boost the economy. China is the world's second-largest oil consumer.
News that a U.S. Navy vessel near the United Arab Emirates fired on a small boat that failed to heed warnings fueled tension in the region and also helped boost oil.
Brent crude gained $1.15 to settle at $103.55 a barrel. U.S. oil rose $1.33 to settle at $88.43 a barrel.
Spot gold were little changed at $1,590 an ounce.
Additional reporting Gertrude Chavez, Richard Leong and Rodrigo Campos; Editing by Dan Grebler