Combine 2-1/2 cups flour, sugar, undissolved yeast and salt in large mixer bowl. Heat water, milk and butter until very warm (120°to 130°F)*. Gradually add mixture to dry ingredients; beat 2 minutes at medium speed of electric mixer, scraping bowl occasionally. Add 1/2 cup flour; beat 2 minutes at high speed, scraping bowl occasionally.
With spoon, stir in enough remaining flour to make soft dough. Knead** on lightly floured surface until smooth and elastic, about 8 to 10 minutes.
*If you don't have a thermometer, water should feel very warm to the touch.
**To knead the dough, add just enough flour to the dough and your hands to keep the dough from sticking. Flatten dough and fold it toward you. Using the heels of your hands, push the dough away with a rolling motion. Rotate dough a quarter turn and repeat the "fold, push and turn" steps. Keep kneading dough until it is smooth and elastic. Use a little more flour if dough becomes too sticky, always working the flour into the ball of dough.