* Euro boosted as Germany may buy Greek bonds via KfW
* Traders cover extreme short position in euro
* European, U.S. stocks rise on US data (Recasts, updates prices)
By Emily Flitter
NEW YORK, Feb 26 (Reuters) - U.S. and European stocks rose on Friday, along with crude oil, as the United States reported the economy grew more strongly in the fourth quarter than it had previously estimated, but the dollar fell as traders moved to cover bets against the euro.
U.S. stocks ended the last trading day of February with their best monthly gains since November, though they finished lower on the week.
The dollar fell against major currencies as traders sold the greenback to cover extreme euro short positions as worries over Europe's debt crisis eased, a day after the euro fell to a one-year low against the yen.
The euro hit a session high after Bloomberg reported that Germany may buy Greek bonds through lender KfW Group. Reuters had reported on Feb. 11 that Germany was considering using KfW to buy Greek debt. For more, see: ID:nBAT005115
Greece has been at the center of the euro's struggles the last few months, with its fiscal debt this year estimated at more than 120 percent of gross domestic product, the highest of any euro zone member.
In late trading on Friday, the euro EUR=> was up 0.46 percent at $1.3616 from a previous session close of $1.3555. Against the Japanese yen, the dollar JPY=> was down 0.24 percent at 88.86 from a previous session close of 89.070.
World stocks measured by the MSCI All-Country World Index .MIWD00000PUS was up 0.89 percent.
"The bigger narrative remains in Europe and in the absence of negative news today we are seeing the euro consolidating a bit. The gains seem to be a result of short-covering," said Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington.
"Whatever anxieties (about Greece) we have are already priced in, at least based on what we know," said Warren West, principal at Greentree Brokerage Services in Philadelphia.
Oil prices rose as much as 2 percent to trade near $80 a barrel after the upward revision in U.S. gross domestic product data helped revive lackluster sentiment.
The government reported the economy grew at a 5.9 percent annual pace in the fourth quarter, revised from the previous estimate of 5.7 percent growth. But the data showed that consumer spending in the residential investment was lackluster. ID:nN25113351.
An industry report that existing home sales fell 7.2 percent last month also dented sentiment on Wall Street. ID:nN26167386
The Dow Jones industrial average <.DJI> gained 4.23 points, or 0.04 percent, to 10,325.26. The Standard & Poor's 500 Index <.SPX> was up 1.55 points, or 0.14 percent, at 1,104.49. The Nasdaq Composite Index <.IXIC> added 4.04 points, or 0.18 percent, at 2,238.26.
Volume was light as a major snowstorm blanketed the East Coast.
"There was a lot of economic data this morning, most of them worst than expected," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. "Offsetting that is the fact that the dollar has declined somewhat and in general, when the dollar has been declining, that's positive for equities."
The dollar was down against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> down 0.51 percent at 80.372 from a previous session close of 80.787.
The pan-European FTSEurofirst 300 .FTEU3> index of top shares closed up 1.1 percent at 1,007.51.
European bank and commodity stocks led the share price gains as metal and oil prices rose.
U.S. crude oil futures rose, and global stock and commodities' prices were firmer, boosting commodity-linked currencies such as the Australian and New Zealand dollars.
U.S. light sweet crude oil
U.S. Treasury debt prices rose.
The benchmark 10-year U.S. Treasury note