* Oil prices inch up on supply cut expectations
* Wall Street rises as Trump federal budget plan released
* Sterling subdued after deadly Manchester attack
* European stocks climb after upbeat data (Recasts with Wall Street close; updates throughout)
By Hilary Russ
NEW YORK, May 23 (Reuters) - Wall Street rose on Tuesday as investors were relieved by the release of President Donald Trump's budget proposal and oil prices inched up in spite of a White House proposal to sell half the country's petroleum reserves.
U.S. Treasury bond yields extended their rise in late trading after a solid 2-year debt auction while euro zone shares closed higher on strong growth data.
Oil prices rose slightly in volatile trading as expectations of an extension to OPEC-led supply cuts and another drop in U.S. crude inventories offset the proposal in Trump's budget plan to roll out sales of petroleum reserves over 10 years.
U.S. crude rose 0.84 percent to $51.56 per barrel and Brent was last at $54.26, up 0.72 percent on the day.
Trump's first full budget plan calls for an increase in military and infrastructure spending but also a raft of cuts, including healthcare and food assistance.
"People will keep an eye on any sort of indication of corporate tax reform as well as infrastructure spending," said Nadia Lovell, U.S. equity strategist at J.P. Morgan Private Bank in New York.
The Dow Jones Industrial Average rose 43.08 points, or 0.21 percent, to end at 20,937.91, the S&P 500 gained 4.4 points, or 0.18 percent, to 2,398.42 and the Nasdaq Composite added 5.09 points, or 0.08 percent, to 6,138.71.
"There were no large surprises. The market is pleased with that," said Wade Balliet, chief investment strategist at Bank of the West in Denver, Colorado.
Trump's tax and spending plan in its current form is unlikely to be approved by Congress, which will craft its own.
Across the euro zone, businesses showed their strongest run since 2011, according to IHS Markit's Flash Composite Purchasing Managers' Index for May. It matched the previous month's 56.8, its highest since April 2011. A reading above 50 indicates growth.
The pan-European FTSEurofirst 300 index rose 0.25 percent and MSCI's gauge of stocks across the globe gained 0.09 percent.
Sterling was subdued after reports showing sluggishness in the UK economy and a suicide bombing at a pop concert in Manchester Monday night that killed 22 people and wounded dozens.
"Increasingly the markets are just more and more numb to these. As bad as they are and as horrific as they are, the market immediately looks through these things and uses these as buying opportunities more than anything else,” said Brad Bechtel, managing director FX at Jefferies in New York.
The pound was last 0.25 percent lower at $1.2968.
Treasury debt yields rose, with some investors paring bond positions to make room for this week's federal and corporate supply while others reduced safe-haven bond holdings in favor of stocks.
There was solid demand at a $26 billion auction of a new two-year note issue, the first part of the $88 billion in coupon-bearing government debt supply this week. Some traders also turned cautious ahead of the release of the Federal Reserve's minutes of its May 2-3 meeting on Wednesday.
The benchmark 10-year U.S. Treasury note yield was 2.287 percent, up three basis points from late on Monday, while the 30-year bond yield was more than three basis points higher at 2.949 percent.
The dollar rose against a basket of major currencies as its worst week of losses in a year drove some profit taking, and as investors turned their attention to Wednesday's Fed minutes.
The index rose 0.41 percent after falling to a more than six-month low on Monday.
"We haven't heard from any Fed members clarifying or warning the market that they are on the wrong side. That's a positive sign that June is still a go (for an interest rate hike)," said Alfonso Esparza, senior currency analyst at OANDA in Toronto.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Additional reporting by Roberta Rampton in Washington and Saqib Iqbal Ahmed, Richard Leong, Sinead Carew and Julia Simon in New York; Editing by Chizu Nomiyama and James Dalgleish