* U.S. Q2 GDP data stronger than previously reported
* Impact of ECB rhetoric lingers
* Sterling down after data indicates British house prices
(Recasts, updates prices, adds comment)
NEW YORK, Aug 28 (Reuters) - The dollar rallied against the
euro on Thursday, recovering from early losses after data
showed the U.S. economy expanded in the second quarter at a
pace faster than first reported.
The U.S. economy grew at a 3.3 percent annual rate in the
second quarter, according to a report on Thursday, compared
with the initial report of growth at 1.9 percent, bolstered by
consumer spending and exports. For more details, click
[].
Though the euro surrendered gains against the dollar, it
remained off the six-month low touched earlier this week due to
reduced expectations the European Central Bank will cut
interest rates.
"It shows the U.S. economy in general is performing at a
better level than what people probably expected two or three
months ago and the U.S. has the potential to lead global growth
in the second half of the year," said Dustin Reid, senior
currency strategist at ABN AMRO in Chicago.
Midway through the New York session the euro <EUR=> was
down 0.2 percent on the day at $1.4690, well off the session
peak of $1.4807.
The dollar index <.DXY> was up 0.2 percent to 77.168,
moving closer to the 2008 high of 77.619 seen this week.
Against the yen, the dollar was last at 109.51 yen <JPY=>,
little changed on the day but well above the session low of
108.79 after a boost from the U.S. GDP report.
Still, despite the dollar benefiting since late July from
growing signs that economic malaise has spread beyond the
United States, doubts remain about the ability of mortgage
finance giants Fannie Mae <FNM.N> and Freddie Mac <FRE.N> to
raise enough capital to sustain themselves in a troubled U.S.
housing market, which may weigh on the dollar down the road.
That contrasts with sentiment around the euro after ECB
governing board member Axel Weber said on Wednesday that talk
about lower rates was premature, prompting traders to rethink
their bets on euro zone rates. The reverberations of these
remarks were still felt on Thursday.
"ECB council members have been quite active over the past
few days with communicating their take on the market's
impression of the current rate outlook, seemingly trying to
quell market expectations that the bank is close to cutting
rates," said Sacha Tihanyi, associate currency strategist at
Scotia Capital in Toronto, in a note to clients. "This may end
up curbing the potential for further U.S. dollar gains against
the euro."
ECB HOT AIR?
But not everyone is convinced.
"We believe that the ECB talks a tough story but does not
really deliver," said Steve Barrow, currency strategist at
Standard Bank in London, adding that the ECB's last rate hike
in July was little more than a "token" gesture. "It seems to us
that the currency market also sees the ECB as being full of hot
air."
Sterling was down 0.5 percent against the dollar at $1.8262
<GBP=> after briefly touching a new two-year low at $1.8248,
while the euro was up 0.3 percent against sterling at 0.8044
<EURGBP=>.
The pound remained weak after a measure of British house
prices showed the biggest annual price fall for 17 years and
retail sales posted the steepest fall since records began a
quarter of a century ago, indicating an increasingly fragile
economy. [] and [].
"The pound's in trouble," said Derek Halpenny, senior
currency economist at BTM-UFJ.
"The big problem for the UK -- and the markets are aware of
it -- is the inability of the authorities to do much about it,"
he said, referring to Britain's fiscal deficit.
Traders barely reacted to a Japanese report published in
Japan on Thursday saying the United States, Europe and Japan
had planned to intervene and rescue a weak dollar in March.
[].
(Reporting by Nick Olivari; Additional reporting by Wanfeng
Zhou in New York and Jamie McGeever in London; Editing by Chizu
Nomiyama)
