* Sterling slides vs dollar, euro on UK Q3 GDP shock
* Euro zone data, euro/stg jump supports euro vs dollar
* UK recession casts doubt over synchronised recovery
* Euro not far off a 14-month high vs dollar
(Updates prices)
By Jamie McGeever and Ian Chua
LONDON, Oct 23 (Reuters) - The dollar and euro rose broadly
on Friday benefiting from a steep slide in sterling after data
showed the British economy was still mired in recession in the
third quarter, confounding expectations for a return to growth.
News the British economy shrank 0.4 percent in the three
months to September overshadowed a relatively more positive set
of euro zone economic data, knocking sterling off a six-week
peak against the dollar.
Sterling tumbled almost three cents against the dollar and
the euro jumped more than one percent versus the pound. This
kept the dollar's trade-weighted index in positive territory,
while the euro also drew support from the euro zone purchasing
managers indices and the Ifo index of German business morale.
The UK data shock bolstered talk the Bank of England will
extend its quantitative easing programme next month. And coming
after relatively dovish statements from the Swedish and Canadian
central banks this week, it cast some doubt over the strength
and synchronicity of the global recovery.
"No doubt people will continue now to speculate there'll be
more QE coming down the pipe in November and all of these things
are not sterling positive," said Jeremy Stretch, strategist at
Rabobank.
At 1112 GMT, sterling was down 1.4 percent on the day at
$1.6393 <GBP=>, falling from a six-week high of $1.6693 before
the GDP data.
The euro was up 1.5 percent on the day at 91.76 pence
<EURGBP=>, on track for its biggest one-day rally in six months.
This supported the euro's 0.1 percent gains on the dollar to
$1.5042 <EUR=>. In Asian trade, the euro took out option
barriers at $1.5050 to a 14-month high of $1.5061.
"The risks continue that we're going to grind higher in
euro/dollar and markets will continue to use dips to buy at
better levels," Stretch added.
"If the markets believe the Fed are going to be on hold for
an indefinite period then obviously it's a case you can utilise
the cheap and readily available dollars ... to invest in higher
yielding assets elsewhere."
The dollar index, a measure of its value against six major
trading partner currencies, was up 0.2 percent on the day at
75.23.
EURO ZONE CHUGS ALONG
For more on UK GDP, which posted its sixth straight quarter
of contraction, the longest stretch on record, see
[]. For a graphic showing UK GDP growth, click here:
http://graphics.thomsonreuters.com/109/UK_Q3GDP1009.gif
Earlier on Friday, euro zone purchasing managers indices and
the Ifo index of German business morale showed the bloc's
economic recovery to be generally on track.
It was something of a mixed bag, however, with the PMIs well
above forecasts but the Ifo numbers not quite as robust as
analysts had expected. See [] and [].
Economists at WestLB said in a note that the German economic
recovery will continue in the coming months, but the global
economy will be unable to regain its "dynamism" of recent years.
"As a result, our assessment that the coming year will only
see a modest economic improvement remains unchanged," they said.
The dollar's trade-weighted gains were also supported by its
rise against the yen, which was under broad selling pressure on
the back of unfavourable U.S-Japanese yield spread moves and an
accumulation of domestic factors.
The country's banking minister said Japan needed a second
extra budget worth around 10 trillion yen and expectations grew
that government debt would rise and a privatisation scheme be
revised, pushing the dollar up to options barriers at 92 yen.
The dollar was last up 0.3 percent at 91.67 yen, having hit
its highest in a month earlier in Asia at 91.92 yen.
The spread between 10-year U.S. and Japanese government bond
yields widened to 210 basis points in favour of the dollar,
making U.S. bonds more attractive to Japanese investors. Earlier
this week that yield advantage was 196 basis points.
Later on Friday, Federal Reserve Chairman Ben Bernanke
speaks. Traders are also digesting Chicago Fed President Charles
Evans' remarks on Thursday that the Fed isn't particularly
worried about inflation right now but is monitoring it closely.
(Editing by Andy Bruce)
