(Adds oil, gold settlement prices)

* MSCI World index slides despite strong U.S. retail sales

* U.S. T-bill yields pare early rise; gold down

* Oil heads for biggest weekly drop since at least May

NEW YORK/LONDON, July 16 (Reuters) - Global stock markets slid on Friday as investors grapple with signs of rising inflation and a surge in coronavirus cases while the dollar edged higher after upbeat U.S. retail sales data reaffirmed the economy accelerated in the second quarter.

The Commerce Department said retail sales rose 0.6% in June, contrary to an expected decline, adding weight to those who say inflation will run faster than the Federal Reserve's forecast and force interest rates to rise sooner than its projections.

Yet bond yields did not jump and pared initial gains, with the benchmark 10-year U.S. Treasury note trading at 1.3053%, or 0.8 basis points higher on the day.

Investors turned risk-averse with the equity markets in decline, while defensive stocks gained both on Wall Street and in Europe.

MSCI's all-country world index, a broad gauge of global shares, fell 0.4% to 720.73. In Europe, the pan FTSEurofirst 300 index closed down 0.38% at 1,754.64.

European defensive sectors rose, with real estate, utilities and healthcare rising between 0.5% and 1% as worries about the coronavirus mounted.

England's coronavirus crisis could return again surprisingly quickly, the British government's chief medical adviser said, before lifting all pandemic-led restrictions on Monday despite rising COVID-19 cases.

In California, Los Angeles county will reimpose its mask mandate this weekend, the latest sign of public health officials struggling with an alarming rise in coronavirus cases.

The slide on Wall Street is surprising considering earnings from the companies that have reported second-quarter results so far have surpassed estimates by 22.1%, Credit Suisse said in a note.

Removing year-ago comparisons show earnings are up a decent amount from levels two years ago and inflation is likely running about 2.6% once last year's low base effect is removed, said Jason Pride, chief investment office for private wealth at Glenmede in Philadelphia.

"That should ultimately be acceptable to the (equity) market and permit an ongoing upward grind," Pride said. "My one hesitation is equity market valuations are high."

Economically sensitive industrials, energy, financials, consumer discretionary and materials are projected to more than double earnings, while so-called big tech and non-cyclicals are expected to grow 36% and 10%, respectively, Credit Suisse said.

The Dow Jones Industrial Average fell 0.67%, the S&P 500 slid 0.52% and the Nasdaq Composite lost 0.44%.

Gold prices dipped as a stronger dollar and slightly higher yields dulled bullion's appeal, while bond yields were subdued after Fed Chair Jerome Powell this week pledged "powerful support" to ensure the U.S. economic recovery.

Mark Haefele, chief investment officer at UBS Global Wealth Management, adviser to many of the world's super-rich, said he expected rates to move higher as the recovery fully takes hold.

"We believe the downward trend in yields will reverse as confidence in the economic recovery mounts. However, we see a rebound in 10-year yields to 2% by year-end as consistent with a continued rally in equities."

In Europe, Germany's 10-year yield fell to a new three-month low in cautious trade ahead of next week's European Central Bank meeting.

Oil ended the week lower, sapped in volatile trade by expectations of growing supplies just when a rise in coronavirus cases could lead to lockdown restrictions and depress demand.

Brent crude settled down 12 cents at $73.59 a barrel. U.S. crude rose 16 cents to end at $71.81 a barrel.

U.S. gold futures settled 0.8% lower at $1,815 an ounce.

In foreign exchange, major currencies were little changed on the day but the dollar headed for its best weekly gain in about a month. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.10% to 92.675.

The euro slid 0.02% at $1.1810, while the yen rose 0.17% at $110.0500.

Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.4%, weighed down by a 1.1% drop in China's blue-chip index and a 0.8% fall for Taiwanese shares.

The Asian weakness was in large part driven by lackluster earnings from TSMC, Asia's biggest firm by market capitalization outside China, which saw its shares fall 4.1%.

(Reporting by Herbert Lash, additional reporting by Hideyuki Sano, Swati Pandey, Sujata Rao and Dhara Ranasinghe; Editing by Marguerita Choy and David Gregorio)