* Dollar gives back gains from best run in months
* All eyes on U.S. Q3 GDP at 1230 GMT
* Higher-yielding FX up, stocks supported, yen slips
(Recasts, updates prices, adds quote, changes byline)
By Jamie McGeever
LONDON, Oct 29 (Reuters) - The dollar weakened on Thursday
as dealers took profits from its recent rise, and the selloff in
equity markets stalled ahead of data that is expected to show
the U.S. economy returned to growth in the third quarter.
Higher-yielding currencies more closely tied to economic
growth such as the Australian and New Zealand dollars rose,
buoyed by a recovery in equities, with traders saying the steep
falls on Wednesday and early Thursday had been overdone.
A solid gross domestic product reading could help foster
renewed optimism about the global economy and fuel further
buying of these currencies and others against the dollar.
But sentiment is fragile after a slew of recent weak U.S.
data that triggered sharp falls in stocks and broad gains for
the dollar and yen.
"We had some risk aversion yesterday and the dollar
stronger, but today we expect a strong GDP number," said Marcus
Hettinger, global FX strategist at Credit Suisse in Zurich.
"I would expect the dollar to weaken a little bit more," if
the GDP number is strong, he said.
Economists estimate that the government's advance estimate
will show GDP grew 3.3 percent in the third quarter, which would
mark the first quarter to show positive growth since the second
quarter of 2008. The data is due at 1230 GMT. []
At 1150 GMT the dollar index <.DXY> was down 0.1 percent at
76.35. It has still gained just over 1 percent this week,
however, leaving it on course for its biggest weekly gain in
nearly five months.
The euro was up 0.1 percent at $1.4727 <EUR=> and was up 0.2
percent at 133.60 yen <EURJPY=R>, recovering from earlier
two-week lows of $1.4683 and 132.81 yen, respectively.
Sentiment was helped by a modest recovery on stock markets,
with European shares <> up 0.2 percent and U.S. stock
futures <SPc1><DJc1><NDc1> rising 0.3-0.4 percent.
Among higher-yielding currencies the Australian dollar was
up 0.7 percent against the dollar <AUD=D4> at $0.9034 and the
New Zealand dollar was up 0.8 percent at $0.7260 <NZD=>.
The New Zealand dollar had fallen to a three-week low after
the Reserve Bank of New Zealand (RBNZ) earlier dropped its
easing bias as expected but faced down market pressure for a
rate rise as soon as early 2010. []
Against the yen <JPY=>, the U.S. dollar rose 0.1 percent to
90.73 yen.
ALMUNIA ON FX
Thursday's data is expected to reveal that the world's
largest economy has turned a corner, but U.S. data this week
have raised questions about a sustained recovery, with consumer
confidence dipping to recessionary levels and new home sales
falling unexpectedly.
Given the risk-trade correction under way, some dealers said
currency markets might react more to weaker figures than
stronger ones, and if so, that could give the dollar a bit more
strength short-term.
"We were getting to the point where some currencies were
looking heavily oversold on short-term measures and we are now
seeing a bit of a comeback," said Naeem Wahid, currency
strategist at Bank of Scotland Treasury.
Wahid highlighted the high degree of uncertainty about the
likely outcome of the U.S. GDP figures and said a very strong
number would enable renewed gains for higher risk currencies,
while a particularly weak number would push the market back into
risk averse mode.
Also on Thursday, the EU's top economic official said major
economies should coordinate to limit volatility in foreign
exchange markets.
"What we have to do is to maintain the coordination between
the main economies of the world, as we do in the G7 and the G20,
and exchange rates should be the product of flexible mechanisms
.... in tune with market fundamentals," economic and monetary
affairs commissioner Joaquin Almunia said. []
