NEW YORK (Reuters) - The US dollar fell against the euro on Friday as investors pared extreme short positions in the euro on the last business day of the month after its recent declines.

The euro hit a session high after a Bloomberg report that Germany may buy Greek bonds through lender KfW Group. Reuters had reported on February 11 that Germany was considering using KfW to buy Greek debt.

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.

A rise in global stocks and commodities reduced safe-haven bids on the dollar and boosted commodity-linked currencies such as the Australian and New Zealand dollars.

"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" on the euro, said Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington.

Salvaggio said that while the report on the German bank buying Greek debt lifted the single currency, he was not reading too much into Friday's price action, because the market "remains incredibly bearish" on the euro zone.

As economic data and "the situation in Europe continues to deteriorate," the currency will be under tremendous pressure, he said.

In late afternoon trading in New York, the euro was up 0.5 percent at $1.3616, helped by a rise in European shares.

Against the yen the euro was 0.3 percent higher on the day at 121.06 yen after falling as low as 119.66 yen on electronic trading platform EBS on Thursday, its weakest since February 2009.

Friday's US data was mixed, but overall showed the US economy is slowly recovering, particularly with strong gross domestic product growth for the fourth quarter and a rise in a key US Midwest manufacturing index.

Still, after the dollar rose about 1.5 percent in February versus the euro, the greenback was bound for an end-of-the-month correction, analysts said.

"This is all related to month-end fixing," said Jacob Oubina, a senior currency strategist at FOREX.com, in Bedminster, New Jersey. "As global portfolio managers rebalance their portfolios for the month end, they need to buy euros and sell dollars."

The latest data from the Commodity Futures Trading Commission showed euro shorts hitting a record high for the week ending February 23.

Some traders said sentiment favouring the euro on Friday was also boosted by its sharp rise to a six-week high against sterling, which came under broad selling pressure after above-forecast gross domestic product data failed to offset deeper worries over the UK economy.

The euro rose as high as 89.72 pence, its strongest since mid-January.

Data showing sales of existing US homes fell unexpectedly in January weighed on the dollar against the yen, briefly knocking down Wall Street shares as well.