* Reports Italian parties seeking debt forgiveness hits euro
* Emerging markets currencies face renewed selling pressure (Recasts, updates rates, adds new comments, changes dateline from LONDON)
By Saqib Iqbal Ahmed
NEW YORK, May 16 (Reuters) - The dollar extended its rally against a basket of currencies on Wednesday to touch a five-month high, supported by relatively strong U.S. economic data in recent days, while the euro was hit by reports that a likely future Italian government would seek debt forgiveness from European creditors.
The dollar index, which measures the greenback against a basket of six other currencies, was up 0.14 percent at 93.352, after rising as high as 93.632, its highest since December 19.
The greenback has risen about 1.6 percent this month, boosted by a view that the Federal Reserve will outpace most major central banks in policy normalization.
"There's been some improved sentiment on conditions in the U.S. compared with other parts of the world," said Sireen Harajli, foreign exchange strategist at Mizuho in New York.
U.S. factory output rose in April, although new estimates of manufacturing and overall industrial production showed less growth in prior months than initially believed.
The U.S. currency got a boost on Tuesday when strong U.S. consumer spending numbers sent 10-year Treasury yields surging to a seven-year peak of 3.095 percent.
Euro zone inflation slowed in April, European statistics agency Eurostat said on Wednesday, confirming an earlier flash estimate and adding to the headache of European Central Bank policy makers seeking to phase out monetary stimulus.
Japan's economy contracted more than expected at the start of this year, suggesting growth has peaked after the best run of expansion in decades, unwelcome news for a government struggling to get traction for its reflationary policies.
"Essentially, the dollar is stronger mostly because the rest of the world is not," said Harajli.
The euro was 0.25 percent lower against the greenback at $1.1807, its lowest since December, after reports that Italy's anti-establishment 5-Star Movement and anti-immigrant League may ask the European Central Bank to forgive 250 billion euros ($294.18 billion) of debt.
"The reaction that we saw in the market definitely reflects the investor sentiment about that," she said.
The euro was 0.4-percent lower against the Swiss franc, after dropping to a five-week low of 1.1772 francs. The Swiss franc typically attracts capital in times of uncertainty.
Against the yen, the dollar was down 0.11 percent at 110.22 yen, but still close to the highest it has been since early February.
Emerging market currencies suffered more losses on Wednesday with the dollar's rise, although the Turkish lira pulled back from record lows after the central bank said it would intervene to stop its slide.
Sterling fell towards its lowest point of the year against the dollar amid fresh worries about Britain's Brexit negotiations and relatively modest UK wage growth, but pared losses to trade little changed on the day at $1.3495.
Reporting by Saqib Iqbal Ahmed Editing by Nick Zieminski