GLOBAL MARKETS-Stocks, dollar gain on hopeful recovery propects

* Wall Street surges in late-day rally as sentiment builds

* Safe-haven bonds rally on poor U.S. retail sales

* Dollar up vs yen on consumer data; euro rally fizzles

* Oil slips below $74 after U.S. retail sales data (Adds close of U.S. markets)

By Herbert Lash

NEW YORK, June 11 (Reuters) - World stocks and the dollar rose on Friday after a surprisingly strong reading of U.S. consumer sentiment buoyed recovery prospects, even as an unexpected drop in U.S. retail sales damped risk appetite.

Wall Street, which had traded lower for much of the session, rose in a late-day rally, capping a volatile week in which stocks slid close to a seven-month low. But the Dow and S&P 500 ended up more than 2 percent for the week.

While analysts said the underlying trend of steadily rising consumer spending was intact, a 1.2 percent drop in U.S. retail sales in May reported by the Commerce Department on Friday sent oil prices lower and lifted the price of safe-haven bonds.

Gold gained for a third straight week as recovery concerns firmly underpinned prices. But copper posted its largest weekly gain since early April on rising demand expectations from the United States and China, the world's two largest consumers.

Investors were torn between two currents: those who see little risk of the U.S. economy slipping back into recession and those who fear a slowdown after a brief recovery.

"We have placed a double-dip in the U.S. for a long time at 15 percent and that is still where we are. The most likely scenario is the economy continues to grow at a 3 percent pace," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.

Still, the unexpected drop in U.S. retail sales heightened fears generated by Europe's sovereign debt crisis. For more see [ID:nN11114277].

"Without that spending, what is going to drive economic activity?" said Kevin Mahn, chief investment officer at Hennion & Walsh Inc in Parsippany, New Jersey.

MSCI's all-country world equity index <.MIWD00000PUS> was up 0.6 percent, while the pan-European FTSEurofirst <.FTEU3> closed up 0.5 percent to 1,018.87 points.

The Dow Jones industrial average <.DJI> closed up 38.54 points, or 0.38 percent, to 10,211.07. The Standard & Poor's 500 Index <.SPX> rose 4.76 points, or 0.44 percent, to 1,091.60. The Nasdaq Composite Index <.IXIC> added 24.89 points, or 1.12 percent, to 2,243.60.

For the week, the Dow rose 2.8 percent, the S&P gained 2.5 percent and the Nasdaq advanced 1.1 percent.

Wall Street threw off worries over the disappointing retail sales late in the day as the focus turned to a strong forecast from chip maker National Semiconductor Corp .

Even so, the volume was lackluster, indicating little conviction that the advance will continue next week.

The dollar rose against the yen and euro on the better-than-expected rise in the Thomson Reuters/University of Michigan's Surveys of Consumers.

Lingering worries about euro zone debt and technical barriers also contributed to the euro's decline, ending a three-day winning streak that drove it as high as $1.2152.

The dollar was up 0.3 percent at 91.67 yen in late trading. The euro fell 0.2 percent to $1.2087 , its first daily decline since Monday, when it hit $1.1876, its lowest level since 2006. The euro edged up to 110.86 yen .

U.S. oil prices fell more than 2 percent on the U.S. retail sales drop and an easing of industrial output in China, which revived concerns about oil demand. [ID:nSGE65A07B]

Friday's slide snapped a three-day string of higher closes, but for the week oil prices still managed a 3.17 percent gain.

"The retail sales number put a damper on things and the report on Chinese inflation had already helped pull oil back," said Robert Yawger, senior vice president, energy futures at MF Global in New York.

Chinese inflation quickened to a 19-month high in May, and some analysts said China needs to raise interest rates and let the yuan strengthen. China is the world's second biggest oil consumer. [ID:nTOE65A019]

U.S. crude for July fell $1.70, or 2.25 percent, to settle at $73.84 a barrel, trading from $73.26 to $75.64.

ICE Brent fell 94 cents to settle at $74.35, but ended up 4.6 percent on the week.

Benchmark U.S. Treasury yields ended marginally higher on the week after retracing some of Thursday's spike due to the stock rally. The 10-year note yield finished at 3.23 percent, the middle of a 3 percent to 3.50 percent trading range which analysts said would hold through the summer.

U.S. gold futures for August delivery settled up $8 at $1,230.20 an ounce.

Earlier in Asia, the MSCI index of Asia Pacific ex-Japan stocks <.MIAPJ0000PUS> rose nearly 1.7 percent. Japan's Nikkei average <.N225> climbed 1.7 percent, helped by a halt in the yen's advance against the euro . (Reporting by Steven C. Johnson and Burton Frierson in New York; Emma Farge, George Matlock, Jan Harvey and Michael Taylor in London and Lucia Mutikani in Washington; writing by Herbert Lash; Editing by Leslie Adler)