* Seven of 91 European banks fail stress tests * Anxiety over tests boosts dollar's appeal * Offsets optimism spurred by strong earnings, German data (Updates to show U.S. stock indexes rising after 1720 GMT, GE's dividend increase, gold falls after stress tests)
By Walter Brandimarte
NEW YORK, July 23 (Reuters) - Global stocks rose on Friday as fewer-than-expected European banks failed stress tests, but the euro fell as analysts questioned the tests' credibility.
Gold tracked the euro lower, falling below $1,190 an ounce.
Seven out of 91 European banks failed tests imposed by regulators, showing an overall capital shortfall of 3.5 billion euros under the worst scenario.
"The market expectation was that you were going to have about 10 bank failures -- two from Germany, one from Greece and about six from Spain -- and capital shortfalls totaling at least 100 billion euros," said Cary Leahey, an economist at Decision Economics in New York.
A larger number of failures, Leahey added, would have added credibility to the tests.
The tests, released after European markets closed, were designed to provide a clear picture of the impact of Europe's sovereign debt crisis on its financial institutions.
But regulators said on Friday the stress tests were applied only to the banks' trading books -- not their banking books.
On Wall Street, U.S. stocks scored solid gains in early Friday afternoon trading, following Dow component General Electric's announcement of a dividend increase and the European banks' stress tests. Initially, the three U.S. stock indexes were mixed -- Dow up a touch while the S&P 500 and the Nasdaq were down slightly -- right after the stress test results were released. The stress test results came on the heels of solid earnings from major U.S. companies, including Microsoft and Ford.
In Europe, the market closed higher before the results of the tests were released. Mining shares ranked among the gainers as copper hit a two-month high. The STOXX Europe 600 Banking Index inched higher.
World stocks measured by the MSCI All-Country World Index advanced 0.29 percent, while the FTSEurofirst 300 <.FTEU3> index of top European shares advanced 0.48 percent to end at 1,044.31.
The three major U.S. stock indexes had fluctuated between positive and negative territory most of the morning.
At 1733 GMT, the Dow Jones industrial average <.DJI> shot up 84.61 points, or 0.82 percent, to 10,406.91 -- just about 22 points below its 2009 close.
The Standard & Poor's 500 Index <.SPX> was up 7.11 points, or 0.65 percent, to 1,100.78 -- within about 15 points of being at the break-even point for the year. The Nasdaq Composite Index <.IXIC> rose 16.17 points, or 0.72 percent, to 2,262.96 -- just about 7 points below where it ended 2009.
On Friday, General Electric Co
The euro was down 0.52 percent against the dollar, at $1.2821, after rising briefly after data showed German business sentiment jumped in July to its highest level in three years.
The anxiety over the stress tests boosted the dollar's safe-haven appeal, driving it up 0.40 percent against the Japanese yen to 87.26.
The dollar also gained against a basket of major trading-partner currencies, with the U.S. Dollar Index up 0.19 percent at 82.755.
U.S. crude oil futures fell 64 cents, or 0.80 percent, to $78.66 per barrel following the stress test results. Earlier, U.S. oil futures reached an 11-week high at $79.60.
The 10-year U.S. Treasury note declined 3/32 in price, with the yield at 2.953 percent. Traders said the uncertainty over the stress tests was curbing a broader sell-off in the Treasury market.
U.S. August gold futures