By Caroline Valetkevitch
NEW YORK (Reuters) - World stocks gained on Friday on signs of a gradual improvement in euro zone growth and the euro rose to its highest level in almost three weeks versus the dollar, while gold climbed above $1,300 an ounce.
U.S. stocks rose, putting the S&P 500 index on track for its first two-week winning streak of the year, despite more weak data on the U.S. economy. Investors again appeared to blame the data on bad weather.
U.S. factory production fell 0.8 percent in January, the biggest drop in more than 4-1/2 years. The report from the Federal Reserve follows an unexpectedly weak U.S. retail sales report Thursday that stock investors also discounted because of the weather.
"The fact the market has not been adversely affected by the weaker numbers, any of the recent numbers that have fallen short, the smart market money believes it is in fact the weather and the economy has not fallen off the tracks here," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.
Investors also gave a cautious thumbs up to political changes in Italy.
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Italy's center-left leader, Matteo Renzi, forced out Prime Minister Enrico Letta on Thursday after Letta failed to pass major reforms. The new government will be Italy's third in a year, but the hope is that Renzi can revive efforts to streamline the euro zone's third-largest economy.
The MSCI global stock index climbed 0.4 percent, while stocks in Milan were Europe's best performers, rising 1.5 percent, compared with a 0.5 percent gain for the pan-European FTSEurofirst 300 index.
Fourth-quarter growth in gross domestic product in both Germany and France exceeded expectations, helping drive GDP for the euro zone up 0.3 percent, beating the forecast for 0.2 percent growth. Germany and France are the euro zone's two largest economies.
On Wall Street, the Dow Jones industrial average rose 63.53 points, or 0.4 percent, to 16,091.12; the S&P 500 gained 3.99 points, or 0.22 percent, to 1,833.82; and the Nasdaq Composite dropped 4.257 points, or 0.1 percent, to 4,236.415.
In the currency market, the euro rose as high as $1.3715.
The euro zone data is likely to help reduce expectations that the European Central Bank will cut interest rates at next month's meeting, after ECB President Mario Draghi last week declared more information was needed before deciding on any action.
GOLD GLISTENS
Gold rose to three-month highs above $1,300 and looked set to post its biggest weekly gain in six months. Spot gold was up 1 percent to $1,315.10 an ounce after earlier rising 1.3 percent to its highest since November 8 at $1,319.80.
The weaker dollar also helped Asian emerging-market currencies gain for the week. The Indonesian rupiah was near an 11-week high after a report showed the country's current account deficit narrowed in the fourth quarter
In the bond markets, U.S. Treasury debt yields edged higher after losses in the previous session.
Benchmark 10-year Treasuries were down 3/32 in price, putting the yield up at 2.74 percent. Yields were on pace to rise for a second straight week.
U.S. bond yields rallied this week after the U.S. Congress approved an increase in the debt limit and Federal Reserve Chair Janet Yellen, in her first public comments since taking the Fed's helm, maintained the central bank's commitment to gradually withdraw its stimulus.
In the energy market, oil prices slipped, with U.S. crude down 38 cents at $99.97 and Brent crude down 12 cents at $108.40.
(Additional reporting by Chuck Mikolajczak in New York; Marc Jones and Marius Zaharia in London; and Lisa Twaronite in Tokyo; Editing by Chizu Nomiyama and Leslie Adler)