(Corrects headline to weekly not monthly)
* Global stocks near new year high
* Europe stocks up 1.2 percent, Japan 0.6 percent
* Dollar recovers some overnight losses
By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 28 (Reuters) - World stocks flirted with a year high on Friday and were on track to close with a seventh consecutive week of gains, as investors showed increasing confidence in global economic recovery.
The dollar also rose against a basket of major currencies, recovering somewhat from overnight losses.
MSCI's all-country world stock index gaining 1.2 percent. Earlier, Japan's Nikkei gained 0.6 percent, the last trading day before Sunday's general election.
"There is only one clear trend in the market and that's on the upside. People are coming back with a lot of inflows in favour of equities and outflows are coming from the money market," said Romain Boscher, head of equity management at Groupama Asset Management in Paris.
"The positive sentiment is mainly explained by flows, but also thanks to improved earnings momentum," he said.
Although trading volume has been thin in August, equities have gained for most of the month on the back of hopes for the U.S. economy and global growth.
Fund tracker EPFR Global said that signs of stabilisation in the battered U.S. housing market had prompted investors to commit about $12 billion of fresh money to a wide range of fund groups in late August, but that there was an outflow from money markets.
Similarly, Reuters asset allocation polls released on Thursday found no signs of any serious pull back in August from the risk rally that began in March.
DOLLAR FIRMS
The dollar clawed back some ground against a basket of currencies while higher yielding and commodity-related currencies edged up against the yen as shares rose.
The U.S currency was hurt by heavy selling late in New York on Thursday, dropping 0.8 percent against a basket of currencies in just one hour. It was particularly hard hit against the Swiss franc amid talk hedge funds had unwound long dollar positions.
"The dollar is trying to regain some ground because the move we've seen has not developed into a broader risk supportive move," said Ian Stannard, senior currency strategist at BNP Paribas.
Euros traded at $1.4337, down slightly, while the dollar gained half a percent to 93.91 yen.
Two-year euro zone bonds yields were up at 1.305 percent, while 10-year yields gained to 3.274 percent. (Additional reporting by Atul Prakash and Emelia Sithole-Matarise, editing by Jon Boyle) (To read stories about investment strategy, double click)