* Dollar falls for a third day as risk aversion cools
* Fed announces facility to boost consumer lending
* US 3rd Qtr GDP contracts, in line with expectations
(Recasts, adds comments; changes dateline, previous London,
byline)
By Vivianne Rodrigues
NEW YORK, Nov 25 (Reuters) - The U.S. dollar fell for a
third day against the euro on Tuesday after a government report
showed the U.S. economy contracted in the third quarter in line
with expectations, easing fears of a steeper drop.
Demand for the U.S. currency also declined after the
Federal Reserve announced a multibillion dollar program to buy
mortgage-related debt and boost consumer lending, in a sign the
credit crunch may also be easing.
Extreme risk aversion and repatriation have helped spark a
rally in the greenback and a sell off in U.S. equities in the
past couple of months as the financial crisis mounted. Wall
Street opened higher on Tuesday buoyed by the Fed's
announcement and the GDP report.
"The markets were relieved that the U.S. GDP data came in
line with expectations and we're seeing stocks move and
euro/dollar higher," said Ron Simpson, director of FX research
at Action Economics, in Tampa, Florida. "There were fears that
it would be much worse. Together with the Fed measures to boost
consumer credit, these should ease risk aversion."
In midmorning trading in New York, the euro was up 1
percent at $1.3027, hitting three-week highs at $1.3080 <EUR=>.
Earlier, it dropped to as low as $1.2805. The dollar was 1.3
percent lower against the yen at 95.75 yen <JPY=>.
The U.S. economy shrank 0.5 percent in the third quarter,
the Commerce Department said in its preliminary GDP report. It
was the sharpest fall since the same period in 2001. See,
[] The U.S. decline is widely predicted to
accelerate in the fourth quarter.
The report "anchors the beginning of the U.S. technical
recession," said Michael Woolfolk, senior currency strategist
at the Bank of New York Mellon in New York. "It's likely to get
much worse before it gets better."
Earlier on Tuesday, the Fed announced a $600 billion
program to buy mortgage-related debt and securities and a $200
billion facility to support consumer debt securities, in
another massive intervention to boost the U.S. financial
system. See [].
The announcement of the Fed's new facilities corresponded
with a new pressure on the U.S. dollar and a rebound in the
equity trading, Marc Chandler, global head of currency strategy
at Brown Brothers Harriman, said.
"The logic appears to be that these steps, along with the
others that have been taken along side the large fiscal
stimulus package, gives greater optimism that the financial
crisis is easing," he said. "The urgency to de-leverage may be
easing."
Elsewhere, sterling hit its highest in two weeks against
the dollar. The pound was up 1.5 percent on the day at $1.5390
<GBP=>, having hit a 2-week high of $1.5395.
(Additional reporting by Gertrude Chavez-Dreyfuss, Steven C.
Johnson and Wanfeng Zhou; Editing by Kenneth Barry)
