* BoE in no rush to raise rates; sterling hits 1-month low vs dollar
* Sources say ECB preparing rate cut, other measures next month
* Lower rate outlook fails to lift European shares
* U.S. shares dip after record; defensive shares climb (Adds oil settlements)
NEW YORK, May 14 Benchmark government bond yields in the United States and Germany fell on Wednesday after sources told Reuters a European Central Bank rate cut next month is "more or less a done deal," while U.S. stocks pulled back from recent record highs.
Euro zone sources said the ECB plans a package of policy options, including measures aimed at boosting lending to small- and mid-sized firms.
The ECB's dovishness has helped hold down yields on German and U.S. debt, though the expectation is stronger U.S. growth will result in a rise in those yields over time.
Ten-year Bund yields hit a one-year low of 1.37 percent while the 10-year Treasury note's yield fell to 2.53 percent, the lowest since October. UK yields also fell after the Bank of England said it was in no hurry to raise rates.
"We've broken out of the range that we've been in for quite some time," said Rick Klingman, a Treasuries trader at Societe Generale in New York. "Globally there's a fixed income rally going on ... people that thought the range would hold are being forced out of those positions."
Bonds rallied even as U.S. wholesale prices increased 0.6 percent in April, the most in 1-1/2 years, a sign inflation pressures may be creeping up.
The S&P 500 edged lower after setting its most recent record closing high, its tenth of the year. Defensive sectors such as utilities and telecoms were the best performers as weakness in smaller-cap names fueled caution.
Oil continued its climb on fighting in Ukraine and a draw on U.S. supplies. U.S. crude oil settled up 67 cents at $102.37 a barrel, while Brent crude gained 95 cents to $110.19.
Sterling fell to a one-month low against the dollar after the BoE said it was in no rush to raise rates and that Britain's economic recovery is still in its early stages.
MSCI's all-country world index slipped 0.06 percent. The FTSEurofirst 300 index of leading European shares closed virtually unchanged, down 0.37 point at 13689.38 points, close to Tuesday's six-year high. The index has risen 6.5 percent from lows in March.
The Dow Jones industrial average fell 94.31 points, or 0.56 percent, at 16,621.13. The Standard & Poor's 500 Index was down 8.72 points, or 0.46 percent, at 1,888.73. The Nasdaq Composite Index was down 25.24 points, or 0.61 percent, at 4,104.93.
Sterling backed off a 16-month high against the euro. The euro was up 0.4 percent against sterling at 81.72 pence .
Sterling was down 0.3 percent against the dollar at $1.6769 , while UK gilt yields fell to as low as 2.58 percent . (Additional reporting by Karen Brettell in New York; Editing by Susan Fenton, Meredith Mazzilli and Dan Grebler; To read Reuters Global Investing Blog click here; for the MacroScope Blog click on blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)