Oil report

GLOBAL MARKETS-Dollar gains, oil slips as markets focus on Mideast

(Adds U.S. market open, byline; changes dateline; previous LONDON)

* World stock markets trade little changed after sell-off

* Oil off highs despite threat of Iran strike against U.S.

* Safe-haven currencies retreat as U.S.-Iran fears ease

NEW YORK, Jan 7 (Reuters) - The dollar gained, helped by better-than-expected data in the U.S. non-manufacturing sector, and oil prices retreated on Tuesday as investors awaited developments in the U.S.-Iranian stand-off in the Middle East.

Gold prices inched higher after earlier backing off an almost seven-year high on Monday, when risk-adverse investors drove demand, while stocks in Europe and on Wall Street were little changed.

A U.S. drone strike in Baghdad on Friday killed Iranian military commander Qassem Soleimani, widely seen as Iran’s second-most powerful figure. Tehran threatened retaliation.

MSCI’s gauge of stocks across the globe shed 0.01%, while the pan-European STOXX 600 index rose 0.29%.

“Earnings and the economy have taken a bit of a back seat relative to the rising tensions in the Mideast and investors are keenly focused on what might happen there next,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Even amid rising geopolitical tensions, cyclical stocks have outperformed defensive shares, an indication the U.S. economy remains strong and growth will reaccelerate later in the year despite the flare-up in the Middle East, he said.

“The ISM non-manufacturing number was a little bit above expectations. That would support the idea the consumer and cyclicals that benefit from the consumer are the leadership today even in a down market,” Arone said.

The Institute for Supply Management said its non-manufacturing activity index rose to 55.0 last month from 53.9 in November. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.

On Wall Street, the Dow Jones Industrial Average fell 108.84 points, or 0.38%, to 28,594.54 The S&P 500 lost 8.37 points, or 0.26%, to 3,237.91 and the Nasdaq Composite added 5.70 points, or 0.06%, to 9,077.16.

Emerging market stocks rose 0.29%.

The safe-haven Japanese yen fell from a three-month high versus the dollar and the Swiss franc pulled back from recent highs against the greenback, though concerns remained paramount about U.S.-Iranian relations.

The dollar index rose 0.4%, with the euro down 0.5% to $1.1137. The yen weakened 0.13% versus the greenback at 108.53 per dollar.

The dollar was up 0.39% at 0.9718 franc.

Oil prices fell more than 1%, surrendering some of the gains of recent days as investors reconsidered the likelihood of immediate supply disruptions in the Middle East.

Brent crude was down $1.21 at $67.70 a barrel. U.S. West Texas Intermediate crude fell 83 cents to $62.44 a barrel.

Euro zone government bond yields edged up from three-week lows and yields on U.S. Treasuries were little changed.

Germany’s benchmark Bund yield was little changed at around -0.28%, having risen from more than three-week lows on Monday at -0.31%. But it remained below last week’s seven-month highs amid euphoria over the year-end stock rally.

Benchmark 10-year notes rose 1/32 in price to yield 1.8073%.

Spot gold edged up 0.31% at $1,570.7 an ounce.

Reporting by Herbert Lash; Editing by Dan Grebler