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(Updates with early U.S. trading, changes dateline, previous LONDON)
* Dow stumbles again at 20,000
* U.S. 10-year yield hits two-week low
* European banks weigh on stocks
NEW YORK, Dec 29 (Reuters) - U.S. and European shares, the dollar and bond yields all headed lower on Thursday, with traders using the quiet holiday period to book some profits on the heady gains stocks have seen in the final quarter of 2016 and reposition for the year ahead.
U.S. benchmark indexes were fractionally lower near midday in the aftermath of the S&P 500's biggest drop in more than two months a day earlier.
As in Europe, financial stocks, which have seen a tremendous run since the U.S. presidential election on the back of higher interest rates, were exerting the greatest downward pressure as bond yields retreated further from their recent highs. U.S. and European bank stocks both were down by more than 1 percent.
"It's really investor malaise," said Alan Lancz, president, Alan B. Lancz & Associates Inc, an investment advisory firm in Toledo, Ohio. "There's no strong activity either way, buy or sell, and light volume."
"This past week, it's been the buyers pulling back and done with their buying and the sellers have been hesitant, even since the election, because they'd rather sell into 2017," Lancz said. "So now you have no activity either way, really, and that's why the volume has really dried up."
The stall on Wall Street put yet more distance between the blue chip Dow Jones Industrial Average and the much-vaunted 20,000 mark. The Dow has gained more than 8 percent since Donald Trump's victory in the Nov. 8 U.S. presidential election and has come to within 20 points of the milestone repeatedly without successfully crossing the line.
In late morning U.S. trade, the Dow was down 0.01 percent at 19,832, the S&P 500 was off 0.03 percent at 2,249 and the Nasdaq slid 0.2 percent to 5,427.
The yield on 10-year U.S. Treasury notes slipped to a two-week low as the bond market sell-off fizzled, pulling the dollar to a two-week low against the yen.
Europe's index of the leading 300 shares fell 0.5 percent. The yen's strength, along with a 17-percent slump in Toshiba Corp's shares after news of potential massive writedowns led to a downgrade to its credit ratings, contributed to a 1.3-percent fall for the Nikkei.
MSCI's broadest index of Asia-Pacific shares outside Japan was last up 0.45 percent, helping to keep global stocks in positive territory with a slender 0.17-percent gain. .
Euro zone bond yields were also falling on concerns about the strength of a rescue plan for Italian banks and normal year-end caution.
Germany's 10-year yields hit their lowest in seven weeks at 0.164 percent before recovering some ground, after their discount to Treasury yields reached its widest on record earlier in the week. The spread remained not far off that mark on Thursday at 2.31 percentage points, and the U.S. 10-year yield slipped back below the key 2.50 percent mark, retreating further from a two-year high above 2.60 percent in mid-December.
The dollar eased by 0.6 percent against the yen to 116.55 , while sterling recovered from a two-month low to trade 0.3 percent higher at $1.2263. The euro was 0.7 percent stronger against the greenback.
In commodity markets, oil was mixed after data showed a surprise build in U.S. crude inventories. U.S. crude fell 0.2 percent to $53.95 a barrel, while Brent was last down 0.04 percent at $56.20. (Reporting by Dan Burns; Additional reporting by Jamie McGeever in London; Editing by Nick Zieminski)