GLOBAL MARKETS-Shares fall for third day on growth worry
* Treasury yields rise as housing data beats expectations
* Dollar steady as housing data stems U.S. yield drop
* Brent rises above $109, Libya oil recovery short-lived (Adds close of European bond and stock markets)
By Herbert Lash
NEW YORK, May 16 (Reuters) - Global equity markets eased on Friday as concerns about future economic growth weighed on share prices on Wall Street, while government debt prices fell on surprisingly strong U.S. housing data.
A monthly gauge of U.S. consumer sentiment fell in May as a gloomy view on income growth clouded an otherwise positive economic outlook, a preliminary reading of the Thomson Reuters/University of Michigan's survey showed.
But data showed U.S. housing starts jumped in April and building permits hit their highest level in nearly six years, the Commerce Department said, in a report that offered hope the troubled American housing market could be stabilizing.
The sentiment data provided fodder to those who expect the economy to struggle in the second half of the year, while the housing data bolstered those who see stronger growth ahead. Weighing on that tug-of-war were expectations of a market correction.
"We're willing to concede that for a host of reasons, these questions about economic growth, all these geopolitical risk issues, whatever, we can absolutely have a 5 or 10 percent correction in the summer," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
"That's what the market has been attempting to price in with this defensive rotation that's been going on for two and a half months now," said Orlando, who remains bullish about stocks.
MSCI's all-country world index was down 0.05 percent, falling for a third day and further retreating from a high set on Thursday. The pan-European FTSEurofirst 300 index closed up 0.3 percent to 1,361.54 points.
The Dow Jones industrial average rose 0.51 points to 16,447.32. The S&P 500 gained 0.97 points, or 0.05 percent, to 1,871.82 and the Nasdaq Composite dropped 5.848 points, or 0.14 percent, to 4,063.445.
The Russell 2000 index of small-cap companies briefly entered correction territory on Thursday, defined as a 10 percent decline from a recent high. It subsequently pulled back and was 9.8 percent below its high in morning trading on Friday.
"We're in the middle of a rolling sector correction, where some areas of the market are performing better than others," said Jerry Harris, president of asset management at Sterne Agee in Birmingham, Alabama, who noted that the S&P 500 hit an all-time record on Tuesday.
U.S. Treasuries prices fell after the better-than-expected housing data pointed to a strengthening economy, pulling benchmark 10-year yields up from six-month lows.
Benchmark 10-year notes were last trading almost flat to yield 2.5035 percent.
The dollar held steady against major currencies as selling of the currency faded with benchmark U.S. yields stabilizing at their lowest levels in six months.
The dollar traded at 101.46 yen, down 0.1 percent, and above a two-month low of 101.31 yen set on Thursday.
The greenback rose against the euro, trading at $1.3700 , up 0.07 percent.
Brent crude oil rose above $109 a barrel after a recovery in Libyan oil supply proved short-lived and as tension simmered over Ukraine.
Brent crude rose 81 cents to $109.90 a barrel. U.S. crude climbed 63 cents to $102.13.
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