* Euro hits 3-1/2-year low against British pound, weak vs dollar
* World shares lower, eyeing stimulus hints
* German debt, Treasuries gain on safe haven flows
By Wanfeng Zhou
NEW YORK, July 16 (Reuters) - Major stock indexes slipped on Monday after a surprise drop in U.S. retail sales in June, while the euro hovered near a two-year low against the dollar on uncertainty over Europe's bailout plans.
Concern about a slowing global economy spurred safe-haven demand for low-risk government debt, driving 30-year U.S. Treasury bond prices up 1 point and yields back towards record lows. German bond prices also rose.
U.S. retail sales fell 0.5 percent in June, the third straight month of decline, as demand slumped for everything from cars and electronics to building materials, a sign the economic recovery is flagging.
"This was a very ugly retail sales report," said Kathy Lien, managing director of FX Strategy for BK Asset Management in New York. "With 3 back-to-back months of negative retail sales growth, we are looking at a very weak third quarter GDP that will show minimal improvement in growth."
The weak data added to caution ahead of Federal Reserve Chairman Ben Bernanke's semiannual testimony before Congressional panels on Tuesday and Wednesday. Investors will parse his words for clues about the possibility and timing of another round of stimulus from the U.S. central bank.
Policymakers from Europe, China and Brazil earlier this month cut interest rates to bolster fragile growth, underscoring growing worries about a slowing global economy.
The MSCI world equity index fell 0.2 percent to 308.82 points.
On Wall Street, the Dow Jones industrial average was down 55.52 points, or 0.43 percent, at 12,721.57. The Standard & Poor's 500 Index was down 5.58 points, or 0.41 percent, at 1,351.20. The Nasdaq Composite Index was down 16.05 points, or 0.55 percent, at 2,892.42.
European shares slipped a 0.2 percent to 1,040.98.
The euro was broadly weaker on fears that further delays to the mobilization of bailout funds to troubled debtor states could hurt efforts to tackle the region's debt crisis.
Europe's common currency was down 0.2 percent against the dollar at $1.2228. It hit a 3-1/2-year low against the British pound of 78.38 pence.
Financial markets had been expecting a quick ruling from Germany's Constitutional Court on whether the euro zone's bailout fund, the European Stability Mechanism (ESM), is compatible with German law but the court said on Monday the verdict would not come until Sept. 12.
The euro was also hurt by a report suggesting a change in the European Central Bank's stance on how some bondholders could be treated under Spain's bank bailout.
The Wall Street Journal said ECB President Mario Draghi advocated imposing losses on holders of senior bonds issued by the worst hit Spanish savings banks.
The ECB declined to comment on the report, which also said finance ministers rejected the advice due to concerns financial markets would react badly to such a decision.
The benchmark 10-year U.S. Treasury note price was up 12/32, with the yield at 1.4487 percent.