* Dollar index at 1-year low, euro at 2009 high
* China data boost economic recovery hopes; shares rise
* Dlr diversification, long-term status under spotlight
* Dollar/yen at 7-month low
(Updates prices; changes byline)
By Jessica Mortimer
LONDON, Sept 11 (Reuters) - The dollar fell to a one-year low against a basket of currencies on Friday as strong Chinese data buoyed belief the global economy is recovering, tempting investors towards perceived higher risk currencies.
Gains in equities also encouraged risk-taking, further denting the U.S. dollar and lifting currencies such as the euro, sterling and the Australian dollar as European shares <.FTEU3> headed for a sixth consecutive day of gains.
The dollar was well on track for its steepest weekly decline in almost four months against a basket of currencies and the euro, which hit a 2009 high of $1.4627.
"Over the course of the past few days it has been a theme of broad-based dollar weakness, largely because risk sentiment has held up well, so we're seeing a lot of the pro-cyclicals doing well like euro and sterling," said Societe Generale currency strategist Phyllis Papadavid.
"That's likely to continue to be the case in the near term, although sooner or later there will need to be some stock-take of the macro economic data and the fact that the recovery is still quite mild," she added.
At 1152 GMT the dollar index, a gauge of the greenback's performance against six other major currencies, was down 0.3 percent on the day at 76.60 <.DXY>, having earlier traded down at 76.511, its lowest since September 2008.
The euro was up 0.2 percent on the day at $1.4603
Solid data out of China added to the view the global economy is firmly on the road to recovery [ID:nPEK13979], while questions about the dollar's long-term value 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. [ID:nPEK61981].
The dollar was down 1 percent on the day against the yen at
90.86 yen
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.
Others noted, however, 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.
Among currencies seen as higher risk. sterling rose 0.4
percent to $1.6708, just below a one-month high of $1.6742
RESERVES IN FOCUS
The diversification issue does not appear to have affected demand for U.S. government debt. Three auctions this week worth $70 billion went well and alleviated some fears the appetite for U.S. government debt may be dwindling in the face of the massive doses of supply. [US/]
Concerns about central bank reserve diversification remain, however.
Russian central bank first deputy chairman Alexei Ulyukayev told Reuters on Friday the central bank would like to diversify its basket of forex reserve currencies by adding two or three more. [ID:nL5593402]
"There's discussion about diversification, Fed credibility, and the re-emergence of the U.S. current account deficit," said Michael Klawitter, senior strategist at Commerzbank in Frankfurt.
He added the market wants to see at least a test of the December 2008 high in the euro at $1.4720. (Reporting by Jessica Mortimer; editing by Chris Pizzey)