* Chinese iron ore demand seen flattening * US stocks fall after strong rally * Dollar up against major currencies, flat against euro By Walter Brandimarte NEW YORK, March 20 (Reuters) - Renewed concerns about China's economic growth weighed on global stocks on Tuesday, giving a boost to safe-haven U.S. government bonds and the dollar. U.S. crude oil prices dropped nearly 2 percent as increased supply from Saudi Arabia and a return to pre-war exports from Libya eased pressure on the market. Concerns about the scale of China's economic slowdown resurfaced as BHP Billiton, the world's largest miner, said it was seeing signs of "flattening" iron ore demand from the country. U.S. stock indexes traded more than half a percentage point lower after a rally on Monday drove the S&P 500 to a level less than 10 percent shy of its 2007 all-time high. "It seems like a market that probably just needs to take a rest, but I wouldn't be surprised (if) we rally into the day," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "It is now a focus back on the fundamentals on the economy and those news items aren't quite as daunting. It's really just fine tuning." The Dow Jones industrial average was down 66.41 points, or 0.50 percent, at 13,172.72. The Standard & Poor's 500 Index was down 6.54 points, or 0.46 percent, at 1,403.21. The Nasdaq Composite Index was down 20.25 points, or 0.66 percent, at 3,058.07. The S&P 500 has gained more than 11 percent so far this year as a steady flow of strong U.S. economic data encouraged stock investors. Tuesday's U.S. housing data was mixed, however, with housing starts falling in February, but permits for future construction jumping to the highest level since October 2008. World stocks measured by the MSCI All-Country World Index dropped 0.76 percent, after closing on Monday near levels last seen in late July. In Europe, the FTSEurofirst 300 index fell 0.9 percent as autos and miners were hit by worries of a Chinese economic slowdown. "Stocks are being driven down on reports of major discounts amongst the luxury good car brands in China and comments about weak iron ore demand," said Richard Batty, strategist at Standard Life Investments, with $248.37 billion of assets under management. The dollar rose 0.1 percent against a basket of major trading-partner currencies, according to the U.S. Dollar Index , as Chinese economic worries weighed on growth-related currencies. The euro, however, was stable against the greenback at $1.3233. U.S. crude oil prices dropped 1.6 percent to $106.78 a barrel, also pressured by the strength of the dollar, which makes the commodity more expensive to non-U.S. investors. Benchmark 10-year Treasury notes were trading 1/32 higher in price to yield 2.37 percent, down from 2.38 percent late Monday, while 30-year bonds gained 11/32 to yield 3.46 percent, down from 3.48 percent.