* Treasury yields hit highest in 10-months
* Wall Street dips as energy lags
* Dollar remains soft (Updates with U.S. market open, changes byline, dateline; previous LONDON)
By Chuck Mikolajczak
NEW YORK, Jan 18 (Reuters) - World equity markets dipped on Thursday, pausing after a string of record highs, while a decline in oil prices dragged on energy shares and the U.S. stock market.
Shares on Wall Street took a breather, after the best performance of the year for the Dow and benchmark S&P 500 saw the indexes close above the 26,000 mark and the 2,800 threshold, respectively, for the first time.
Equities were held in check by the energy sector, which shed 0.48 percent, dragged lower by a 2.53 percent drop in Kinder Morgan in the wake of its quarterly results.
Oil prices were weighed down by a reported rise in U.S. fuel stocks although losses were pared after EIA data showed a bigger-than-anticipated crude stock draw.
Mixed economic reports gave investors reason for pause as weekly initial jobless claims hit a 45-year low but U.S. homebuilding recorded its biggest drop in just over a year.
"We are coming off such great housing reports that one is a little bit of a head scratcher for people," said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.
"After a big run-up like this, sometimes people are just looking for a reason to take some profits and with a lack of other things to point to, they can point to that."
The Dow Jones Industrial Average fell 82.66 points, or 0.32 percent, to 26,032.99, the S&P 500 lost 3.92 points, or 0.14 percent, to 2,798.64 and the Nasdaq Composite dropped 2.49 points, or 0.03 percent, to 7,295.79.
MSCI's gauge of stocks across the globe shed 0.11 percent, while the pan-European FTSEurofirst 300 index rose 0.09 percent.
Investors have drawn inspiration from an improving global economy and the onset of the U.S. corporate earnings season in the recent run higher. Earnings growth for the quarter is forecast at 12.2 percent, according to Thomson Reuters data through Wednesday morning.
Yields on U.S. 10-year notes reached a 10-month high on Thursday after China reported fourth-quarter growth that accelerated for the first time in seven years.
Underlining the momentum of the world economic expansion into the back end of last year, both Chinese fourth quarter growth of 6.8 percent and December industrial output growth of 6.2 percent were ahead of expectations.
Benchmark 10-year notes last fell 9/32 in price to yield 2.6108 percent, from 2.578 percent late on Wednesday. The data drove European counterparts higher as well, with Germany's 10-year bond yield near a 5-1/2 month top at 0.575 percent.
The U.S. dollar fell as traders piled into the euro, yen, sterling and other major currencies amid worries over a possible U.S. government shutdown as lawmakers struggled to cobble together a federal budget deal.
The dollar was last down about 0.4 percent with the euro up 0.35 percent to $1.2227.
Republican lawmakers are scrambling to pass a temporary measure to keep the government open. A House vote on the funding extension is expected after 2:30 p.m. (1930 GMT).
Editing by Bernadette Baum