* Euro hits 3-1/2-year low against British pound
* World shares lower, markets eye stimulus hints
* German debt, Treasuries gain on safe-haven flows
By Wanfeng Zhou
NEW YORK, July 16 (Reuters) - U.S. government bond yields flirted with record lows, oil prices rallied and the dollar fell to a one-month low against the yen on Mo nday after weak U.S. retail sales data fed bets a faltering economy would prompt more stimulus from the Federal Reserve.
Wall Street stocks slipped but came off early lows, partly helped by gains in some financial shares, including Citigroup Inc, which posted stronger-than-expected profit.
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.
Markets looked ahead to Federal Reserve Chairman Ben Bernanke's semiannual testimony before congressional panels o n Tu esday and Wednesday. Investors will parse his words for clues about the possibility and timing of another round of stimulus.
"I think people have started to re-price more easing coming through from the Fed after the retail sales data," said Brian Kim, currency strategist at RBS Securities in Stamford, Connecticut.
Benchmark 10-year Treasury notes were trading up 14/32 in price at 102-25/32 for a yield of 1.445 percent, down 4.6 basis points from late on Fr iday.
Earlier, the 10-year yield touched 1.442 percent, matching the lowest level going back to the early 1800s last seen on June 1, according to data compiled by Reuters.
The 30-year bond yield touched a session low of 2.520 percent, within striking distance of a record low of 2.510 percent set on June 1.
Central banks from Europe, China and Brazil earlier this month cut interest rates to bolster fragile growth, underscoring growing worries about a slowing global economy. But some analysts said Bernanke is likely to remain non-committal.
"He will definitely leave the door open to more stimulus. However, he won't provide any clear-cut signals on the timing, which is what investors really want to hear," said Kathy Lien, managing director of FX Strategy for BK Asset Management in New York.
The MSCI world equity index was slightly down at 309.31.
U.S. stocks edged lower. The Dow Jones industrial average was down 53.40 points, or 0.42 percent, at 12,723.69. The Standard & Poor's 500 Index was down 3.90 points, or 0.29 percent, at 1,352.88. The Nasdaq Composite Index was down 9.18 points, or 0.32 percent, at 2,899.29.
European shares rose 0.1 percent to end at 1,043.71 .
The euro hit a 3-1/2-year low against sterling as investors fretted about the delay in making bailout funds accessible to troubled euro zone states.
Europe's common currency fell as low as $1.2173, not far from a two-year low of around $1.2160 hit last week, before recovering to trade little changed at $1.2254.
It fell to 78.33 pence against sterling, its weakest since late 2008, but was last at 78.39 pence, down 0.3 percent. The euro also dropped to 96.14 yen, its lowest since June 1, and hit a record low against the Canadian dollar.
Germany's Constitutional Court said on Monday it would not rule until Sept. 12 on whether the euro zone's bailout fund -- The European Stability Mechanism -- and planned changes to the region's budget rules are compatible with German law.
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.
In commodities trading, oil prices rose above $103 a barrel, supported by weekend comments from China's Premier Wen Jiabao that Beijing would step up its efforts to boost the economy. China is the world's second-largest oil consumer.
Brent crude was up $1.14 to $103.54 a barrel. U.S. oil rose 55 cents to $87.65 a barrel.
Spot gold were little changed at $1,591 an ounce.