GLOBAL MARKETS-Stocks pause, crude bounces back

* U.S., Europe stocks dip; global shares buoyed by Japan

* Euro retreats from 4-1/2-month high vs dollar

* Nikkei futures dip after three days of gains

* Investors eye Libya, Japan

(Updates prices, changes quotes)

By Rodrigo Campos

NEW YORK, March 22 (Reuters) - Markets took a breather on Tuesday following days of volatility as uncertainty over fighting in Libya and Japan's earthquake aftermath kept both stocks and U.S. government debt in a narrow range.

Oil prices edged higher, with Brent briefly above $116 a barrel after an earlier drop as unrest in Yemen raised concerns about a further threat to supply.

With little economic data to focus on, investors fretted over world events such as nuclear reactor damage in Japan and political instability in the Middle East and North Africa that has kept oil prices volatile.

The MSCI global stocks index <.MIWD00000PUS> was up 0.3 percent, boosted by an overnight rise in Japanese stocks. European and U.S. equity benchmarks fell slightly.

Tokyo's Nikkei average <.N225> added 4.4 percent as traders returned from a national holiday. Reports of progress in containing radiation leaks at an earthquake-hit nuclear power plant encouraged traders to buy domestic shares after last week's losses of more than 10 percent.

U.S. dollar-denominated Nikkei futures were trading lower after three days of hefty gains.

"There's a relative calmness in markets as investors plot their next moves, even though we're flying through fog with all the issues that remain uncertain," said Jeffrey Davis, chief investment officer at Lee Munder Capital Group in Boston.

Trading volumes remained subdued in Wall Street.

The Dow Jones industrial average <.DJI> shed 9.58 points, or 0.08 percent, to 12,026.95. The Standard & Poor's 500 Index <.SPX> dropped 3.59 points, or 0.28 percent, to 1,294.79. The Nasdaq Composite Index <.IXIC> lost 10.11 points, or 0.38 percent, to 2,681.98.

U.S. trading volume slowdown http://r.reuters.com/gyp68r

Japan earthquake in graphics http://r.reuters.com/fyh58r

EURO RETREATS, CRUDE REVERSES LOSSES

In currency markets the euro dipped after hitting $1.4249 against the U.S. dollar, its highest level since November, as it ran into what traders said were options-related barriers.

Still, expectations that the European Central Bank will hike interest rates next month could limit any downside for the common currency.

"This, to me, is just a technical pullback," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

The dollar also had hit a a 15-month low against other major currencies <.DXY> but later ticked up.

Reversing earlier losses, U.S. crude rose more than 1 percent to near $104 per barrel while Brent edged above $115 as unrest in Yemen threatened to further crimp energy exports from the Gulf region.

"The situation in the Middle East is still very bullish for oil," said Phil Flynn, analyst at PFGBEST Research in Chicago. "The unrest spreading (there) on top of the conflict in Libya is still the market focus."

U.S. Treasuries were little changed in low volume as investors looked for further progress in Japan and the Middle East. U.S. benchmark 10-year Treasury notes were last down 4/32 in price to yield 3.34 percent.

China's rare earth metal export prices were up almost ninefold from a year before in February according to Reuters calculations based on data from China's Customs office. For details, see [ID:nTOE72L01E]

The hike in export values has coincided with a collapse in volumes coming out of China, the source of almost all the world's rare earth supplies. The country has cut export quotas and raised tariffs on exports, infuriating trading partners.

Shares in U.S. miner Molycorp , one of the few companies outside China that are well-placed to capitalize on the constriction in supply, jumped more than 10 percent. (Additional reporting by Ryan Vlastelica, Karen Brettell, Wanfeng Zhou, Joshua Schneyer and Tom Miles; Editing by Andrew Hay)