* Dollar fades after ISM services data
* U.S. stocks rebound from brief decline
* Oil prices lower after early spike
* Gold climbs on dimmed hopes for rate hike (Updates with close of U.S. markets, oil settlement prices)
By Chuck Mikolajczak
NEW YORK, Sept 6 (Reuters) - The dollar slumped on Tuesday after data on the U.S. services sector fell well short of expectations, while a gauge of global equity markets held near a one-year high.
The Institute for Supply Management said its index of non-manufacturing activity fell to 51.4, its lowest level since February 2010, from 55.5 the month before and well shy of the 55 estimate. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.
Stocks on Wall Street briefly turned negative in the wake of the data and MSCI’s index of world shares pared gains before rebounding to last trade at 424.16, its highest level since Aug 10, 2015.
The dollar softened considerably, down 1 percent against a basket of major currencies, with the greenback on track for its biggest drop since late July.
The services sector report diminished expectations for a rate hike by the U.S. Federal Reserve in September, with the odds of a rate hike this month now at 18 percent, versus 21 percent on in the prior session, according to CME’s FedWatch tool. Expectations for December have also decreased to just above 50 percent.
Comments from several Fed officials in recent weeks had increased the probability for a rate hike this year, but expectations have declined since Friday’s weaker-than-anticipated U.S. payrolls report.
The Fed is “not getting support from data for a rate increase, and so we’re seeing the market creep a little higher today,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
The Dow Jones industrial average rose 46.37 points, or 0.25 percent, to 18,538.33, the S&P 500 gained 6.5 points, or 0.3 percent, to 2,186.48 and the Nasdaq Composite added 26.01 points, or 0.5 percent, to 5,275.91.
Stocks in Europe also pulled back after the data, with the FTSEurofirst 300 closing down 0.4 percent, although MSCI’s index of world shares was last up 0.7 percent.
Benchmark 10-year U.S. Treasury yields sunk to a two-week low of 1.534, and were last yielding 1.5425 percent, up 16/32 in price.
The disappointing data helped lift spot gold more nearly 2 percent to $1,349.01 an ounce, after touching a high $1,351.84.60 an ounce, its highest level since Aug. 19.
But despite the weaker dollar and low expectations for a rate hike this month, oil prices were mixed in volatile trade. Brent settled down 0.8 percent at $47.26 while U.S. crude settled up 0.9 percent $44.83 as hopes for quick action by producers to tackle a global supply glut faded.
Oil prices had jumped earlier after Saudi Arabia and Russia agreed on Monday to cooperate in world oil markets, saying they will not act immediately but could limit output in the future.
Additional reporting by Caroline Valetkevitch; Editing by Nick Zieminski