* Optimism on global economy boosts risk appetite
* Dollar drops to four-month low vs basket of currencies
* Euro climbs to seven-week high against U.S. dollar
(Adds comments, details, changes byline)
By Vivianne Rodrigues
NEW YORK, May 12 (Reuters) - Growing optimism about the global economy boosted investors risk appetite, leading to a sell-off in the dollar on Tuesday to a four-month low as demand for the U.S. currency as a safe haven dwindled.
Stronger-than-expected UK retail sales, housing market and industrial production data pushed sterling up well over 1 percent versus the dollar earlier in the session, while the euro hit a seven-week high above $1.37.
Leading central bankers, including European Central Bank President Jean-Claude Trichet, said on Monday the global economy was at an "inflection point" and could turn the corner soon. [ID:nLB194016]
"We've passed the worst in the recession," said Matt Esteve, a foreign-exchange trader at Tempus Consulting in Washington. "We're not necessarily moving into growth yet, but at least the pace of deterioration has slowed."
"As the global economy approaches a turnaround, the dollar has really lost its appeal as a safe-haven investment," he added.
In afternoon trading in New York, the ICE Futures U.S. dollar index, which tracks the greenback against a basket of six currencies, fell 0.6 percent, having hit 81.998, the lowest since early January .DXY.
The dollar index is on track for its third consecutive close below the 200-day moving average after breaking below longer-term technical support on Friday. The 200-day moving average now becomes technical resistance.
The euro rose earlier to a seven-week high of $1.3706, according to Reuters data. It was last up 0.3 percent at $1.3621 <EUR=>, getting a further lift after ECB Governing Council member Axel Weber said there is no need for the central bank to expand its asset purchase program into other sorts of private debt at present. See [ID:nLAG003429].
The euro was firmly on track for a third daily close above the 200-day moving average and second straight week above the 200-week moving average.
Against the yen, the euro erased earlier gains to trade 0.9 percent lower at 131.07 yen <EURJPY=> and the dollar fell 1.3 percent to 96.26 yen <JPY=> after sliding to 96.12 yen, the lowest since late April, according to Reuters data.
With Tuesday's slide, the dollar has declined about 3.5 percent in the past four sessions and is now testing the March and April lows, currency analysts at Brown Brothers Harriman said in a note. A break through the 96.30 yen level would potentially pave the way for a a move back toward 91.50 yen, said BBH.
Hopes that the worst of the economic slump and financial crisis was over have put heavy pressure on the dollar recently. The U.S. currency tends to fall when risk appetite rises as investors move money away from safe-haven assets into riskier investments.
"The market seems comfortable with the 'green shoots' rally and buying riskier assets," said Michael Woolfolk, senior Currency Strategist at The Bank of New York Mellon. "Until this slows, there is no reason to remain long the safe-haven dollar...even against the low-yielding yen.
Investors' focus now is changing to Wednesday's U.S. retail sales and readings on U.S. producer and consumer prices scheduled for Thursday and Friday, respectively.
Earlier on Tuesday, UK data showed retail sales rising at their fastest rate in three years last month, while house prices declined at their slowest pace in 15 months. Separate reports showed UK industrial and manufacturing output fell less than forecast in March [ID:nLC770404] [ID:nLC775574].
Sterling was up 0.9 percent at $1.5256 <GBP=>, having earlier climbed to $1.5352, the best level since early January.
Also on Tuesday data from China showed investment spending surged even though exports fell more steeply than expected. See [ID:nPEK146927].
(Additional eporting by Wanfeng Zhou in New York; Editing by Theodore d'Afflisio)