* U.S. data points to strengthening economy * Crude prices rise on violence in Algeria, Mali * S&P 500 hits highest level in five years NEW YORK, Jan 17 (Reuters) - Stocks in major markets rose while the dollar pared losses against the euro on Thursday as better-than-expected U.S. housing and labor market data signaled strength in the world's largest economy. Strong demand at a Spanish debt auction also added to bullish sentiment toward riskier assets. Oil prices climbed on signs of economic strength and concerns about supply interruptions because of violence in Algeria and Mali. Wall Street opened higher, with the S&P 500 hitting levels not seen since 2007 as reports showed new claims for unemployment benefits tumbled to a five-year low last week and U.S. housing starts surged last month. "The housing data was great and so were these jobless claims. Both of them said 'buy more equities,'" said Frank Lesh, futures analyst and broker at Futurepath Trading in Chicago. The Dow Jones industrial average rose 32.53 points or 0.24 percent, to 13,543.76, the S&P 500 gained 3.15 points or 0.21 percent, to 1,475.78 and the Nasdaq Composite added 9.74 points or 0.31 percent, to 3,127.29. World shares, which have largely drifted sideways this week, rose 0.3 percent and were on track to hit a fresh 20-month high. In Europe the main focus was on Spain's success in selling 4.5 billion euros ($6 billion) of new bonds at a lower cost than in the previous auction, signaling growing confidence among investors in the outlook for the recession-hit euro area. Spanish 10-year yields edged higher on the day at 5.080 percent but were down from a session high of 5.174. Equivalent Italian yields were near session lows at 4.416 percent. The U.S. dollar extended gains versus the yen and pared losses versus the euro after the strong U.S. data. The greenback last traded at 89.28 yen, up 1 percent on the day. The dollar fell 0.35 percent versus the euro at $1.3335, down from a euro session high of $1.3378. The euro and the dollar were already higher against the yen after Japanese Economy Minister Akira Amari was quoted as saying his recent comments on the negative impact of a weak yen had been misinterpreted. The yen has been falling ahead of a Bank of Japan meeting next week when policymakers are widely expected to adopt a 2 percent inflation target and perhaps extend the current asset purchase programme. Oil prices gained support from concerns about supplies being affected by military activity in Algeria and Mali. Six foreign hostages and eight of their captors were killed when Algerian forces fired on a vehicle being used by gunmen at a gas plant in Algeria, a local source told Reuters. Brent added 1 percent to $110.73 a barrel, and U.S. oil was up 1.2 percent to $95.40.