* Global stocks up 1 percent, near new year high
* Europe stocks up 1.3 percent, Japan 0.6 percent
* Dollar adds to 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.
Wall Street looked likely to join in with a positive opening.
The dollar struggled to recover from overnight losses but ended up weaker against a basket of major currencies.
MSCI's all-country world stock index gaining 1.3 percent. Earlier, Japan's Nikkei rose 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 due to hopes for the U.S. economy and global growth.
Fund tracker EPFR Global said 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 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 SLIPS
The dollar initially clawed back some ground against a basket of currencies but succumbed as stocks rose.
It was down very slightly after dropping 0.8 percent in just one hour late in New York. It was particularly hard hit against the Swiss franc amid talk that hedge funds had unwound long dollar positions.
The euro traded at $1.4367, up slightly, while the dollar gained 0.4 percent to 93.91 yen.
Two-year euro zone bonds yields were flat at 1.283 percent, while 10-year yields gained to 3.275 percent. (Additional reporting by Atul Prakash and Emelia Sithole-Matarise, editing by David Stamp)