* U.S. dollar index at 12-month low, euro hits 2009 high
* China data boosts economic recovery hopes; shares rise
* U.S. dollar/yen at 7-month low
* U.S. consumer sentiment improves, inventories fall (Adds comments, details. Updates prices)
By Vivianne Rodrigues
NEW YORK, Sept 11 (Reuters) - The U.S. dollar fell to a one-year low against major currencies on Friday as Chinese and U.S. economic data and higher world stock prices reinforced investor optimism about the global economy.
The prospects for economic recovery and low U.S. wholesale borrowing rates continued to encourage investors to move cash out of the dollar into riskier assets in other currencies.
As a result the greenback was on track for its fifth straight weekly decline against the Japanese yen, while the euro was at its highest against the dollar since May.
A recent multi-day advance in European and U.S. equities encouraged investors to leave the perceived safety of the greenback and favor riskier assets such as stocks, emerging markets and commodity-linked currencies.
"Dollar selling momentum has picked up and it is likely to continue for a while," said Win Thin, a currency strategist at Brown Brothers Harriman in New York. "Gains in stocks ... (and) solid data out of China and the U.S. recently are all contributing to the move."
In late morning trading in New York, the InterContinental Exchange's dollar index, a gauge of the greenback's performance against six other major currencies, was down 0.3 percent at 76.56 after falling to 76.45, its lowest in nearly a year.
The euro was last 0.1 percent up on the day at $1.4597, more than 2 percent higher on the week. The euro zone single currency hit a 2009 high of $1.4627 earlier, according to Reuters data.
The euro briefly erased gains earlier when a U.S. Coast Guard training exercise on the Potomac river set off a security scare in Washington as the United States marked the eighth anniversary of the Sept. 11 attacks.
Solid data out of China added to the view the global economy is on the road to recovery. Questions about the dollar's long-term value also added to the negative sentiment towards the currency.
A U.S. Treasury official on Friday said it makes sense for China to diversify its huge stockpile of foreign exchange reserves, which analysts said fed the bearish dollar sentiment that has firmly taken hold this week.
UPBEAT DATA, CARRY TRADES
A report showing improving U.S. consumer sentiment on Friday also built on recent evidence that an economic recovery was picking up speed.
The Reuters/University of Michigan Surveys of Consumers said the preliminary reading of consumer confidence index for September rose to 70.2, the highest since June.
"Consumer confidence is tied closely to retail sales and consumer spending and one would hope that with an increase in confidence, we would see an increase in retail sales," said Andrew Busch, a global FX strategist at BMO Capital Markets in Chicago.
The dollar was down 1.5 percent on the day against the yen at 90.37 yen, having hit a seven-month low of 90.35 yen, according to Reuters data.
Some analysts said yen strength may reflect the repatriation of profits by Japanese exporters ahead of the end of the first half of the Japanese fiscal year.
They also noted the focus in times of strong risk appetite may now be firmly on selling the dollar, rather than on selling of currencies such as the yen and the Swiss franc which were previously seen as the funding units of choice in carry trades.
In carry trades investors borrow in low-yielding currencies to finance purchases of higher-yielding assets.
"The yen has been surprisingly strong," said Thin at Brown Brothers. "Repatriation and some dollar-funded carry trades may be contributing to its gains."
Sterling rose 0.3 percent to $1.6699, within sight of a one-month high of $1.6742, while the Australian dollar gained 0.4 percent to $0.8664. (Additional reporting by Wanfeng Zhou; Editing by James Dalgleish)