By Nick Olivari NEW YORK (Reuters) - The dollar climbed against a basket of major currencies for the second straight day on Tuesday as positive economic data bolstered expectations the United States will be at the forefront of a global economic recovery. That would help push up U.S. interest rates and make U.S. assets more attractive, boosting demand for the dollars to buy them. Sales at U.S. retailers rose at their fastest pace in 3-1/2 years in August as government-sponsored incentives buoyed demand for autos, according to data on Tuesday that showed sales outside the auto sector also were strong. "There is no question of this being positive data, even though the cash-for-clunkers program was a huge part of it," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York. "It's consistent with the story that the economy has bottomed though not yet in a position for fiscal and monetary stimulus to be removed" U.S. producer prices rose more than twice as much as expected in August on the biggest surge in gasoline prices in more than 10 years and prices declined less than expected compared with a year ago, a government report showed on Tuesday. But investors are looking toward the removal of the stimulus, leading to higher interest rates, which would be good for the dollar, Woolfolk said. The dollar index, which measures the dollar's value against a basket of currencies, rose 0.2 percent to 76.887 .DXY, staying above a one-year low of 76.457 hit last week. The euro was last at $1.4587, down 0.2 percent on the day. The euro also was hurt by Germany's ZEW survey indicating investor sentiment had risen less than expected in September. Against the yen, the dollar rose 0.3 percent to 91.20 yen, pulling away from a seven-month low hit on Monday. "This morning's economic reports were overwhelmingly positive for the U.S. dollar with fundamentals overshadowing risk appetite," said Kathy Lien, Director of Currency Research of GFT. POUND UNDERPERFORMS Sterling underperformed after Bank of England Governor Mervyn King said the central bank was looking at reducing the rate on commercial banks' reserves, fueling speculation of further quantitative easing. Sterling was down 1 percent on the day to $1.6410 after King's comments. Sterling also hit a four-month low versus the euro on King's comments. The Australian dollar erased earlier losses after minutes of the Reserve Bank of Australia's last policy meeting gave little guidance to markets on when the cash rate would be raised from its record low of 3 percent.

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