By Chibuike Oguh

NEW YORK (Reuters) -Global equity markets were flat while U.S. Treasury yields rose on Tuesday as recession worries persisted amid concern the Federal Reserve will continue its steep interest rate hikes despite nascent signs of a slowdown in inflation.

The yield curve between two- and 10-year Treasury notes, viewed as an indicator of impending recession, remained inverted at minus 38.60 basis points on Tuesday.

“It seems that the bond market doesn’t quite reflect the inflation happening in the economy,” said George Young, a portfolio manager at Villere & Company in New Orleans.

“The weird thing is that in the last couple of weeks bond yields have gone up and stayed up so there’s kind of a disconnect. There’s kind of a question maybe inflation isn’t that bad and we may actually be going into a recession. Market participants are all over the place,” he added.

MSCI’s gauge of stocks in 50 countries across the globe were up just 0.04%. Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.07% lower, while Japan’s Nikkei lost 0.01%.

U.S. Treasury yields edged higher as encouraging data from U.S. retail giants suggested the U.S. Federal Reserve has room to further raise rates to cool inflation. Benchmark 10-year Treasury yields were at 2.844% from 2.791% on Monday

On Wall Street, the benchmark S&P 500 and the Dow reversed earlier losses and were trading higher, with stocks in consumer discretionary, financials and consumer staples leading the rebound.

The Dow Jones Industrial Average rose 0.47% to 34,071.45, the S&P 500 lost 0.01% to 4,296.5 and the Nasdaq Composite dropped 0.52% to 13,059.82.

Oil prices dropped more than 2% in volatile trading as recession worries raised uncertainty over global crude demand, even as markets awaited clarity on talks to revive a deal that could allow more Iranian oil exports.

Brent crude futures fell 2.5% to $92.72 a barrel, after hitting a session high of $95.95. West Texas Intermediate crude (WTI) decreased 2.72% to $86.98 a barrel, after rising to $90.65.

The dollar gained as the greenback benefited from expectations the U.S. economy will be stronger than peers in the event of a slowdown in growth. The dollar index rose 0.085%, with the euro up 0.05% to $1.0165.

Safe-haven gold fell for a second straight session on Tuesday as a firmer dollar made the greenback-denominated metal more expensive. Spot gold dropped 0.2% to $1,775.75 an ounce, while U.S. gold futures fell 0.56% to $1,771.40 an ounce.

(Reporting by Chibuike Oguh; Editing by Sandra Maler)