U.S. retail sales rose during May, posting the third increase in five months, but much of the gain was due to gasoline station receipts given a boost by higher prices.

The 0.5% increase in retail sales reported Thursday by the Commerce Department was smaller than expected. Economists surveyed by Dow Jones Newswires forecast a 0.6% increase.

Several categories of retailers tumbled last month. The increases tended to be among sellers of essential items, such as food and clothes.

Filling station sales rose 3.6%. Excluding gasoline sales, other retailers’ sales increased 0.2%. Gas prices have gone up about 28% in the past six weeks, driving station receipts.

Overall retail sales in April were revised higher, decreasing 0.2% instead of 0.4% as previously reported. March sales fell 1.2% instead of 1.3%.

The euro is higher versus the dollar Thursday afternoon as U.S. stocks climb into positive territory.

Higher stocks encourage position taking out of the dollar, a major funding currency. The Dow Jones Industrial Average was recently up about 28 points on the day.

The euro had already recovered earlier from a one-week low against the U.S. unit, $1.4070, after the market got past the day’s key economic events.

It was sold off on a broad rebound in the buck from a 2009 low, as traders took profits on the recent rally in riskier assets and with a return of some caution. A sharp dip also came on rumors, since denied, that U.K. Prime Minister Gordon Brown would resign.

However, overall, currencies are trading inside a very narrow range ahead of the much awaited May U.S. payrolls report to be released Friday.

Thursday afternoon in New York, the euro was at $1.4174 from $1.4145 late Wednesday. The dollar was at Y96.48 from Y95.97, according to EBS. The euro was at Y136.75 from Y135.73, and the U.K. pound was at $1.6136 from $1.6283. The dollar was at CHF1.0692 from CHF1.0715 Wednesday.

Mixed signals in remarks by European Central Bank President Jean Claude Trichet, after the bank left interest rates unchanged at 1.0%, had little impact on the common currency.

Trichet stressed that euro zone policy makers are already thinking about exit strategies from easing mode. He also said that the ECB isn’t considering expanding its EUR60 billion covered bond purchase program, or any other non-standard easing measures.

This helped to boost the euro against the U.S. unit, as the Federal Reserve is seen as possibly expanding its Treasury purchases.

However, Trichet was very cautious on the euro zone’s growth outlook. He also spoke on the importance of a strong dollar policy in the U.S. in response to a question on the euro’s three-month rally.

The Bank of England also voted to keep rates unchanged Thursday, as expected.

Elsewhere, emerging markets in Europe were shaky Thursday. Assets continued to feel the fallout from Latvia’s escalating financial crisis, particularly the Hungarian forint and Polish zloty.

Signs that Latvia’s economic woes are worsening have prompted speculation that authorities could be preparing to drop their currency’s peg to the euro, despite repeated official denials.

The Latvian central bank Thursday said it will maintain the stability of the national currency until the euro can be adopted.

A European Commission spokesman said earlier Thursday that European Union and International Monetary Fund officials are currently in Latvia “assessing the situation.”

Bank-lending rates in Latvia rose to record highs Thursday, a new sign of a growing liquidity shortage.

Swedish banks, which are heavily exposed in the Baltic region, saw their stock prices recover heavy losses Thursday after the Swedish government pledged support to any Swedish banks running into trouble. But the Swedish krona remains near the low end of its recent trading ranges against the dollar and euro after falling sharply Wednesday.

Global emerging market equity funds absorbed $3.79 billion in week to June 3 vs just over $2 billion in previous week, says fund tracker EPFR Global. Notes investors put more cash in emerging markets, commodities, energy, following broad weakness of safe-haven USD, JPY. Adds higher risk appetite eyed in $22.7 billion being pulled out from money market funds to look for higher yields, also $1.1 billion being pumped into global bond funds – largest weekly inflows since 4Q of 2004. Says U.S., Japan, Europe equity funds had outflows on concerns over weak domestic demand. Notes global emerging market equity funds have taken $26.1 billion net inflows year-to-date vs $50 billion net outflows for whole of 2008