* Treasury bond yields highest in 10 days * Wall Street rebounds on Fed official's comment * Dollar rallies after retail sales data; gold falls * European shares hit 2-1/2-month high on optimism about economy By Wanfeng Zhou NEW YORK, Aug 13 (Reuters) - U.S. Treasuries yields approached two-year highs and the dollar rallied broadly on Tuesday after a gauge of U.S. consumer spending rose at its fastest pace in seven months. World equities markets edged higher. U.S. stocks rebounded after a Fed official said the economic picture is too mixed for the U.S. central bank to detail its exit strategy from massive stimulus. European shares hit 2-1/2-month highs after data pointed to an improving economic outlook across the euro region. The benchmark 10-year U.S. Treasury note was down 29/32, its yield at 2.7244 percent. The rise in bond yields hurt dividend stocks like utilities, while homebuilding shares also underperformed because higher rates make mortgages less affordable. Atlanta Fed President Dennis Lockhart said recent data does not present a clear picture of the economy, even as he did not rule out some kind of decrease next month in the current $85 billion monthly pace of bond buys. U.S. retail sales outside of cars, gasoline and building materials rose 0.5 percent last month, the biggest gain since December. Overall retail sales rose 0.2 percent during the month, just below analysts' expectations. Strong U.S. data will encourage the Federal Reserve to trim its purchases of bonds, perhaps as early as September. Such a move will boost U.S. bond yields and bolster the appeal of dollar-denominated assets. "For the next five and a half weeks every U.S. statistic will be measured by its impact on the September 18th (Federal Open Market Committee) decision," said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey. "By that standard today's number should keep the Fed on track to curtail quantitative easing purchases in September." MSCI's all-country world index, a measure of 45 equity markets around the world, rose 0.3 percent. The Dow Jones industrial average gained 35.17 points, or 0.23 percent, at 15,454.85. The Standard & Poor's 500 Index was up 4.32 points, or 0.26 percent, at 1,693.79. The Nasdaq Composite Index was up 15.22 points, or 0.41 percent, at 3,685.17. The FTSEurofirst 300 rose 0.6 percent to 1,236.99, within sight of its 2013 peak at 1,258.09. The euro zone's blue-chip Euro STOXX 50 ended up 0.5 percent at 2,841.61 points. A jump in Germany's ZEW economic sentiment survey dovetailed with a rise in euro zone industrial output and the fastest rise in UK house prices in seven years, bolstering a renewed sense of optimism in the region. "It is not only Germany that is moving in the right direction," said Deutsche Bank economist Mark Wall. "There is a general improvement taking place in Europe and in the context of this being a debt crisis one shouldn't underestimate the importance of getting back to a position of growth... The $64,000 question is whether this is sustainable." The dollar index, which measures the greenback versus a basket of six currencies, gained 0.6 percent to 81.787. The euro fell 0.3 percent to $1.3257, while the dollar rallied 1.4 percent to 98.26 yen. In Asia, Japanese shares jumped 2.6 percent and the yen fell after a media report that Prime Minister Shinzo Abe is considering a cut in corporate taxes to counter the pain of a planned sales tax increase. Brent crude oil rose toward $110 per barrel after oil exports from Libya fell to their lowest in two years, heightening supply worries ahead of scheduled cuts in output from fellow OPEC member Iraq. Brent crude oil futures for September rose 60 cents to $109.57 per barrel, while U.S. light crude oil gained 48 cents at $106.59. Spot gold fell to $1,322 an ounce, retreating from a three-week high as the dollar strengthened. A new hike in Indian import taxes also undermined sentiment.