The dollar stayed on the defensive on Thursday as investors added to long positions in growth-linked currencies and lifted the Australian dollar to a one-year peak, encouraged by growing evidence of a global recovery.

Asian stocks tracked Wall Street higher after US industrial production rose more than expected in August boosting sentiment towards riskier assets.

The sustained shift away from the US dollar left the dollar index subdued at 76.226, near 1-year lows of 76.151 struck on Wednesday and with charts pointing to a gradual fall to 2008 levels of around 70.70.

'Firm stocks suggest the dollar is probably set to slide for another week,' said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank.

The Australian dollar rose to a one-year peak of $0.8757 with its next targets seen at $0.8813 and then $0.8907. In early afternoon trade in Asia, the Australian dollar edged up 0.2 percent to $0.8743.

The New Zealand dollar, which advanced nearly 1.4 percent on Wednesday, was holding steady at $0.7134 with little resistance seen until $0.7200.

The euro inched up 0.1 percent to $1.4729, hovering near a one-year high of $1.4738 struck on trading platform EBS on Wednesday.

The euro has now gained over 2.5 percent this month, riding on improved investor confidence and expectations that U.S. rates are likely to stay rock bottom for some time to come.  But the recent rally in the euro could run out of steam.

'With eight of the nine last sessions ending in euro rallies, the upward trend is extremely stretched,' said Matthew Strauss, senior currency strategist at RBC Capital.

'In fact, euro valuations against the US dollar are the most extreme since May this year. The trend is your friend but beware the technical correction.'    

The yen was broadly lower with the euro gaining 0.3 percent to 134.20 yen and the Aussie climbing 0.4 percent to 79.63 yen. The US dollar also rose 0.2 percent to 91.10 yen as some traders covered their short positions after it fell as far as 90.12 yen on EBS the previous day, a 7-month low.

On Wednesday, the dollar's slide against the yen picked up pace after Japan's Finance Minister Hirohisa Fujii said a strong yen had advantages for the nation's economy.

Fujii also said he was opposed to currency intervention if movements were gradual, while adding that currency moves were not rapid. The yen's rise against the dollar on Wednesday was small despite Fujii's clear opposition to intervention, prompting traders to think twice about buying the yen at the moment, some traders said.

'Fujii was so clear about not intervening and he went so far as to say a strong yen has merit. But the dollar's slide against the yen ended up so small,' said a senior trader for a Japanese bank.

'That suggests to me there is a background that the yen is missing its own fundamental reasons to be bought.' - Reuters