* Stocks fall for second straight session

* U.S. dollar gains, yen weakness eyed

* Euro zone business recovery slows sharply

NEW YORK, June 21 (Reuters) -

Weakness in U.S. technology stocks pulled a basket of global stocks lower for its second straight session on Friday, and the dollar hit its highest level since early May as a gauge of U.S. business activity edged up to a more than two-year high.

S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, inched up to 54.6 this month, the highest since April 2022, from a 54.5 reading in May. A reading above 50 indicates expansion.

However, while a rebound in employment helped lift the reading, price pressures eased, adding to recent data that has boosted optimism that inflation may be cooling.

On Wall Street, the S&P 500 slipped further into the afternoon. The Nasdaq briefly climbed back from early lows, but it stayed shy of record highs met during an AI-powered rally in recent days. Nvidia shares were the biggest drag on both the S&P and Nasdaq with a drop of more than 3% on the session, although the chipmaker remains up about 155% on the year.

The Dow Industrials treaded water after early advances, in part driven by McDonald's shares. The Dow is on track for its biggest weekly percentage gain since mid-May while the S&P is on pace for its third straight weekly advance. The Nasdaq is poised to snap a two-week streak of gains.

"The largest companies in the S&P 500 are excellent, very profitable and growing quickly ... but they are getting a little bit expensive," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

"We wouldn't be surprised if the market takes a breather and cools off a bit in the short term."

The Dow Jones Industrial Average fell 11.72 points, or 0.03%, to 39,123.04, the S&P 500 extended losses to 11.15 points, or 0.20%, to 5,462.02 and the Nasdaq Composite lost 35.97 points, or 0.20%, to 17,685.62.

The MSCI All Country World Index, a gauge of global stocks, fell 3.5 points, or 0.44% on the day, to 800.85. This followed an intraday record of 807.17 hit on Thursday and reduced its prospects for a third straight weekly advance.

Other economic data on the housing market showed U.S. existing home sales fell for a third straight month in May as record high prices and a resurgence in mortgage rates kept potential buyers on the sidelines.

European stocks closed lower, pressured by falls in bank stocks and technology shares against a backdrop of economic data showing euro zone business growth slowed sharply this month.

The STOXX 600 index fell 0.73%, while Europe's broad FTSEurofirst 300 fell 15.59 points, or 0.76%.

U.S. Treasury yields inched higher after the data and kept rising, with the yield on benchmark U.S. 10-year notes 1.1 basis points higher to hit 4.265%. The 10-year yield is on track for its first weekly climb after two straight declines.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained steadily, up 0.19% at 105.83, with the euro down 0.1% at $1.0689.

Sterling kept weakening, down 0.17% at $1.2633.

Against the Japanese yen, the dollar built on a winning streak, up 0.42% at 159.57. That level had not been seen since late April when Japanese authorities intervened to halt the rapid fall in the currency.

Japanese data earlier on Friday indicated the country's demand-led inflation slowed in May, clouding the picture for a rate hike from the Bank of Japan.

BoJ deputy governor Shinichi Uchida said on Friday the central bank was willing to raise rates if the economy and prices move in line with its forecasts, but signs of weakness remained.

The country's top currency diplomat, Masato Kanda, also said Japanese authorities are ready to take action against speculative and excessively volatile moves in the currency market that hurt the economy.

In commodities, U.S. crude reversed early gains made on signs of improving demand, losing 0.78% to $80.66 a barrel. Brent also gave back its earlier advance, shedding 0.67% on the day to $85.14 per barrel. But signs of improving demand still kept both on course for a second straight weekly advance.

(Reporting by Chuck Mikolajczak; additional reporting by Lisa Mattackal and Ankika Biswas in Bengaluru; Editing by Nick Zieminski and Cynthia Osterman)