By Burton Frierson

NEW YORK (Reuters) - The dollar raced to five-month highs against a broad range of currencies on Friday as new data showed economic weakness was spreading to the euro zone while oil prices slid below $117 a barrel as supply concerns waned.

Escalating violence in Georgia helped send emerging economy stock markets to their lowest in almost a year. Russia was the hardest hit as investors suddenly viewed all emerging markets as riskier.

Markets were transfixed by falling oil, though, which inspired Wall Street to shake off a weak start and pushed major stock indexes up well over 1 percent. European stocks also benefited from the improved sentiment.

The rebound in risk appetite hurt safe-haven assets such as government bonds, as is normally the case. This sent prices lower on U.S. Treasuries and euro zone government paper, making their yields, which move in the opposite direction, rise.

"What we are seeing now is oil off, equities are up and that's dragging Treasury yields up," said T.J. Marta, fixed income strategist with RBC Capital in New York.

The Dow Jones industrial average .DJI was up 189.79 points, or 1.66 percent, at 11,621.22. The Standard & Poor's 500 Index .SPX was up 17.43 points, or 1.38 percent, at 1,283.50. The Nasdaq Composite Index .IXIC was up 35.40 points, or 1.50 percent, at 2,391.13.

Wall Street largely shrugged off news that Fannie Mae (FNM.N: Quote, Profile, Research), the largest U.S. home funding source, posted a fourth straight quarterly loss as home loan defaults increased.

The company said it would slash its dividend more than 85 percent and take other steps to shore up its capital position.