* Euro having best day vs dollar in more than a month
* U.S. economy contracts 1.0 percent in Q2
* GDP report shows renewed decline in consumer spending
* Business activity in the U.S. Midwest improves
(Updates prices, adds quote, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 31 (Reuters) - The dollar fell to its lowest
for the year on Friday, weighed down by higher oil prices,
steady stock prices and data showing an unexpectedly small
contraction in the U.S. economy, boosting risk appetite.
Month-end flows as investors rebalanced portfolios
also weighed on the dollar, traders said, curbing demand for
the greenback as a safe haven. The dollar extended declines
after key technical levels were breached.
Government data on Friday showed U.S. gross domestic
product shrank at a slower-than-expected pace in the second
quarter, although the report also showed a drop in consumer
spending. For related news click [].
"I don't think the GDP report is all that bad. Looking at
the data, the liquidation in the first half of the year is
quite positive for second-half growth," said Adam Boyton,
senior currency strategist at Deutsche Bank in New York.
That has contributed to the overall recovery theme and
boosted risk appetite, he added.
Further adding to the positive risk tone was the surge in
commodity prices, with oil prices rising nearly 3 percent
<CLc1>.
In mid-afternoon trading in New York, the ICE Futures U.S.
dollar index, which tracks its movements against a basket of
six other major currencies, fell 1.3 percent to 78.291 <.DXY>,
after falling as low as 78.220, a fresh 2009 low.
At current prices, the dollar index was on track to post a
2.3 percent fall for July.
The euro <EUR=> rose 1.3 percent on the day to $1.4252, its
biggest one-day gain in more than a month. The euro zone's
single currency was up 1.6 percent for July.
The dollar fell 0.8 percent against the yen to 94.71 yen
<JPY=>. The euro rose 0.5 percent versus the Japanese currency
to 135.03 <EURJPY=R>.
Data showing business activity in the U.S. Midwest in July
increased more than expected also boosted demand for riskier
assets, analysts said.
The National Association of Purchasing Management-Chicago
business barometer rose to 43.4 from 39.9 in June. Economists
polled by Reuters had expected it at 43.0. []
"Overall, sentiment for the buck is negative," said Jacob
Oubina, currency strategist at Forex.com in Bedminster, New
Jersey. "The Chicago PMI index actually came in better than
expected and the details were pretty positive across the
board."
Solid global corporate earnings have triggered a rally in
higher-yielding assets this month as risk appetite has picked
up, which has stung the dollar and benefited currencies
including the Australian dollar.
"On balance, a 1 percent decline in GDP is still much, much
improved from the previous quarters. That's consistent with the
stabilization we've seen in the economy," said Omer Esiner,
senior market analyst at Travelex Global Business Payments in
Washington.
"It's the last trading day of the month, and we're still
looking at thin summertime conditions. Expect choppy conditions
to persist."
(Additional reporting by Wanfeng Zhou; Editing by James
Dalgleish)
