By Richard Leong
NEW YORK (Reuters) - The U.S. dollar climbed to a seven-month high on Wednesday on optimism from stronger-than-expected U.S. consumer spending, while Wall Street stocks edged into positive territory despite some worries about the euro zone.
A weak Italian bond auction and disappointing news on data on euro zone factory output hurt the euro and pushed up borrowing costs for Italy and other debt-laden members of the 17-nation block. They also briefly lifted safe-haven gold and U.S. Treasuries prices.
London oil prices fell below $109 a barrel on a rise in U.S. inventories and a mildly bearish report from a major energy agency.
The U.S. government reported that domestic retail sales grew 1.1 percent in February, the biggest rise since September. This raised hopes the world's biggest economy is gathering momentum and might expand more quickly than earlier thought.
"Strong activity numbers will help maintain investor expectations that the U.S. economic recovery is best placed amongst G-3 to begin gaining traction this year," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.
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The dollar index, which tracks the greenback versus a basket of currencies, rose to 83.023, the highest since August 3.
The euro was down 0.8 percent on the day to $1.2952. The single currency had hit a session low of $1.2922, the weakest since December 10.
The euro also fell after an Italian debt auction, seen as a gauge of investor confidence in the euro zone's third-biggest economy amid worries over whether its leaders could forge an effective parliament to tackle its fiscal problems.
Italy sold 5.32 billion euros of new three- and 15-year government bonds, paying the highest yield since last December for the shorter-term debt.
The yield on 10-year Italian government debt on the open market rose 8 basis points to 4.66 percent.
The Italian auction results knocked European shares lower and remained a drag on Wall Street stocks even after the encouraging U.S. retail sales data.
U.S. STOCKS HIGHER
The upbeat news on consumer spending, together with data showing bigger-than-rise in business inventories in January, caused some economists to upgrade their outlook on U.S. economic growth in the first quarter.
U.S. stocks opened lower and were in negative morning all morning before turning higher.
"After the run that we have had in equity markets over the last couple of months, it's no surprise that people are looking to take profits on occasion," said Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh, Scotland.
In midday trading, the Dow Jones industrial average was up 21.10 points, or 0.15 percent, at 14,471.16. The Standard & Poor's 500 Index was up 2.68 points, or 0.17 percent, at 1,555.16. The Nasdaq Composite Index was up 4.61 points, or 0.14 percent, at 3,246.93.
The pan-European FTSEurofirst 300 share index was up 0.05 point at 1,194.07, while Tokyo's benchmark Nikkei index ended down 0.6 percent.
MSCI's world equity index was down 0.92 percent at 359.83, on course for its worst day of the month.
The encouraging U.S. retail sales data pushed U.S. government debt prices lower. The benchmark 10-year Treasury note was down 9/32 in price to yield 2.0489 percent, shortly ahead of a $21 billion 10-year auction.
In the commodity market, benchmark oil prices fell after a report from the International Energy Agency said U.S. production would be enough to protect against most potential supply shocks.
Brent crude was down $1.10 cents at $108.55 a barrel, while U.S. oil slipped 20 cents to $92.34, poised to snap a four-day day winning streak.
Gold prices fell, erasing early gains from the concerns about the euro zone, having already hit its highest level since February 28 at $1,598.20 on Tuesday.
Spot gold was last down 0.39 percent at $1,585.04 an ounce.
(Additional reporting by Wanfeng Zhou and Chuck Mikolajczak in New York; Richard Hubbard in London; Editing by Dan Grebler)