* U.S. stocks little changed after Thursday's rally
* Oil slips as inventories seen building
* Treasury yields ease; dollar lower (Updates to early U.S. afternoon trading)
By Caroline Valetkevitch
NEW YORK, May 15 (Reuters) - Treasury yields dropped and the dollar index dipped on Friday following a stabilization in European government bonds and another batch of weak U.S. data that raised expectations the Federal Reserve will need to wait longer to hike interest rates.
U.S. stocks edged lower after a rally Thursday that pushed the S&P 500 to a record high close, while the MSCI World equity index was up 0.1 percent and headed for a weekly gain.
Data showed U.S. industrial production fell for a fifth straight month in April, in part as oil and gas drilling declined further.
Data showing a sharp drop in U.S. consumer confidence in early May also underscored a lackluster economic picture for the United States.
The reports follow weak retail sales and producer inflation data this week, suggesting the Fed will probably not raise interest rates anytime soon.
"The market is getting more concerned that the economy weakened through the first quarter into the second quarter, and that pushes the Fed back further and further and people get more comfortable jumping back into Treasuries here," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
European government bonds stabilized, helping market sentiment.
Treasury yields have jumped in the past three weeks, in line with a dramatic sell-off in German government debt, and some investors are taking advantage of the higher yields.
Benchmark 10-year Treasury notes were last up 29/32 in price to yield 2.14 percent, down from 2.24 percent late on Thursday.
The dollar index, a measure of the greenback against major currencies, including the euro and yen, was down 0.15 percent and on track to fall for a fifth straight week, the longest such stretch in four years.
The Dow Jones industrial average was down 10.48 points, or 0.06 percent, at 18,241.76. The Standard & Poor's 500 Index was down 2.17 points, or 0.10 percent, at 2,118.93. The Nasdaq Composite Index was down 11.33 points, or 0.22 percent, at 5,039.46.
In commodities trading, U.S. oil futures were lower after reports that growing supply was boosting inventories, while gold held near three-month highs and was headed for its biggest weekly gain since mid-January.
U.S. crude oil was down 49 cents at $59.39 a barrel, while Brent was up 2 cents at $66.72. (Additional reporting by Karen Brettell and Richard Leong in New York and Lionel Laurent in London; Editing by Larry King, Meredith Mazzilli and Dan Grebler)