* Dollar slide continues on higher stocks, risk appetite
* Dollar hits lowest since September vs euro, basket
* Yen rises to 7-month high against dollar (Adds comment, detail, updates prices, changes byline)
By Wanfeng Zhou
NEW YORK, Sept 16 (Reuters) - The dollar dropped to near one-year lows against the euro and a basket of currencies on Wednesday as optimism about a global economic recovery eroded demand for the greenback as a safe haven.
Shares on Wall Street rallied as increased industrial production and a pickup in mergers and acquisitions reinforced hopes the economy was gaining speed. Improving risk appetite pushed higher-yielding currencies like the Australian and New Zealand dollars up more than 1 percent.
Traders have sold the dollar heavily this month as recovery hopes diminished safe-haven demand. Speculation that the dollar was replacing the yen as a funding currency and concerns about the U.S. fiscal deficit fueled dollar selling.
"There's still this persistent link between Wall Street and risk," said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida. "With stocks going up, it continues to be very difficult for the dollar to rally."
U.S. industrial output advanced for a second consecutive month in August, while higher gasoline costs pushed up consumer prices, although economists said the risk of inflation remained low.
In early afternoon trading in New York, the euro rose 0.3 percent to $1.4711. It had earlier climbed to $1.4732, the highest since late September.
The ICE Futures U.S. dollar index, which tracks its performance against a basket of six other major currencies, fell as low as 76.151, its weakest in nearly a year. It last traded down 0.4 percent at 76.278.
Adding to pressure on the dollar was Treasury data showing foreign investors sold U.S. assets for a fourth straight month in July, with private outflows hitting their highest since February.
"The headline number certainly paints a bit of a dark picture with regard to overall demand for U.S. assets," said Omer Esiner, a senior market analyst at Travelex Global Business Payments in Washington. "But I think the silver lining of this number is that we still see healthy demand from foreign central banks for U.S. Treasuries."
The dollar fell 0.2 percent to 90.85 yen. It earlier fell to 90.10 yen, according to Reuters data, the lowest since February, after Japan's incoming finance minister said a strong yen had advantages for the nation's economy.
Hirohisa Fujii said he was opposed to currency intervention if movements were gradual, while adding that current moves were not rapid.
"The comments suggest the new government is not as keen to interfere in the market as the old one was," said Johan Javeus, chief currency strategist at SEB in Stockholm. "It seems this has given a 'go ahead' signal to the market that it's OK for the yen to strengthen."
In other trading, the Australian dollar gained 1.3 percent to US$0.8739 and the New Zealand dollar was up 1.4 percent at US$0.7139. (Additional reporting by Nick Olivari; Editing by James Dalgleish)