* Global stocks hit seven-week highs, banks lead
* U.S. retail sales rise 0.3 percent in February
* Dollar under pressure; yen eases on BoJ easing view
* China tightening speculation still in the mix
(Updates prices after U.S. retail sales)
By Ian Chua
LONDON, March 12 (Reuters) - Global stocks rose to their best levels in seven weeks on Friday thanks to a boost from financials, while reports an arch-dove was a leading candidate for vice chair of the U.S. central bank unsettled the dollar.
Equities extended gains after data showed an unexpected rise in U.S. retail sales in February and Wall Street looked set to open firmer with stock index futures all firmer.
However, market speculation that China would tighten monetary policy imminently to rein in growth and inflation remained in the background, analysts said, keeping some investors cautious for now.
"China is still in the mix. The question is whether it'll be a reserve ratio requirement adjustment or something bigger, certainly the data we got from China was pretty strong this week," said Kenneth Broux, market economist at Lloyds in London.
The pan-European FTSEurofirst 300 index of top shares climbed 0.7 percent, with banks among the biggest sector gainers.
Barclays, Societe Generale, BNP Paribas and Deutsche Bank were all up between 0.5 and 2.8 percent.
Chances of a broad overhaul of U.S. financial regulation dimmed on Thursday after bi-partisan Senate talks collapsed, jeopardising a top Obama administration priority.
"This could have a significant affect on the way banks seek to make money and so the breakdown in Senate talks is being seen as a positive for bank stocks," said Joshua Raymond, market strategist at City Index.
MSCI's world stock index rose 0.5 percent to highs last seen on Jan. 20, on track for its second successive weekly gain, while emerging markets equities climbed 0.6 percent.
Earlier, Japan's Nikkei advanced 0.8 percent with exporters helped by a weaker yen.
Global stocks have been pushing higher since early February, helped by recent improving sentiment around Greece's debt woes, hopes for economic recovery and robust fund flows. Most major equity indexes are now in positive territory for the year.
Still, Greece's fiscal crisis has been a drag on some fund groups, said fund tracker EPFR Global, noting Europe Equity Funds posted outflows of $502 million for the week ended March 10, the seventh weekly outflows in eight weeks.
In contrast, investors ploughed record amounts of cash into emerging market and high yield bond funds that week.
DOLLAR PRESSURED
The euro rose to a one-month high against the dollar, which fell broadly on the prospect that San Francisco Federal Reserve Bank President Janet Yellen, a respected policy dove, could be the next vice chairman of the Federal Reserve.
"The talk that Yellen, an arch-dove, was to become Fed vice chairman would be negative for the dollar," said Adam Cole, global head of FX strategy at RBC Capital Markets.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, fell to a three-week low of 79.692. It was last down 0.5 percent at 79.913.
Earlier, mounting expectations the Bank of Japan will ease monetary policy next week weighed on the yen. The euro scaled a three-week peak of 125.15 yen and was last at 124.95, up 0.9 percent.
Japan's prime minister and finance minister piled pressure on the central bank on Friday, saying the government and the BoJ should work together to beat deflation.
The weaker dollar helped support gains in oil and gold. U.S. crude rose 1.1 percent to $82.97 a barrel, while copper drifted 0.3 percent higher to $7,484.50 a tonne.
Spot gold was at $1,114.75 an ounce, up about $5 from New York's notional close on Thursday.
With stocks holding firm, government bond prices mostly fell, driving yields higher.
The U.S. 10-year yield climbed 3.4 basis points to 3.762 percent, while the equivalent German Bund yield gained 3.3 bps to 3.209 percent. (Additional reporting by Joanne Frearson and Tamawa Desai; editing by Ron Askew and Toby Chopra)