FOREX-U.S. dollar, yen fall as risk sentiment improves

                                
 * Dollar, euro hit two-week highs vs yen
                                
 * Euro/dollar up as risk appetite rises
                                
 * U.S. consumer confidence also positive for risk-taking
                                
 * U.S. ISM manufacturing shrinks at slower pace
 (Recasts, updates prices, adds comment, changes byline)
                                
 By Gertrude Chavez-Dreyfuss
                                
 NEW YORK, May 1 (Reuters) - The U.S. dollar and yen fell on
Friday as improving risk appetite sparked by
better-than-expected U.S. economic data pared demand for both
currencies as a refuge against a global slowdown.
                                
 The dollar fell for a fourth straight session versus the
euro, while the yen dropped to a two-week low against both the
euro and dollar, with volumes thin given the May Day holiday in
Europe. Higher-yielding currencies such as the Australian and
New Zealand dollars were also some of the biggest movers on the
day, moving in tandem with higher U.S. stocks.
                                
 Reports on Friday reinforced the view that the worst of the
recession may have passed, making investors more comfortable
with risk-taking. Data showed U.S. consumers felt more upbeat
about the economy in April, while a closely watched gauge of
manufacturing suggested the sector was gradually emerging out
recession. For story see [ID:nN01402214].
                                
 The numbers were consistent with the Federal Reserve's less
bleak outlook on the U.S. economy on Wednesday.
                                
 "Risk appetite is definitely coming back and the data this
morning was phenomenal," said Melvin Harris, a market analyst
at Advanced Currency Markets in New York.
                                
 "The reports are supportive factors to truly build the case
that while things are not completely better yet, we are moving
in a positive direction. Economic fundamentals will become more
important in the next couple of months."
                                
 In early afternoon trading, the euro rose 0.3 percent
against the dollar to $1.3258 <EUR=> and touched a two-week
high against the yen at 132.33 yen <EURJPY=R>. The euro last
traded at 131.90, up 1.2 percent from late on Thursday.
                                
 The ICE Futures' dollar index, a measure of the greenback's
value versus six major currencies, fell 0.3 percent to 84.591
<.DXY>.
                                
 The dollar, however, gained 0.9 percent against the yen to
99.46 <JPY=>, having hit a two-week high around 99.58 yen,
according to Reuters data.
                                
 The Australian dollar rose 0.7 percent against the U.S.
dollar to US$0.7304 <AUD=>. The New Zealand dollar also climbed
0.8 percent against the greenback to US$0.5693 <NZD=>, while
the Canadian dollar was also firmer, with the U.S. dollar down
0.7 percent at C$1.1850 <CAD=>.
                                
 Investors were also encouraged by data overnight showing
Chinese manufacturing gained further momentum in April, as well
as by Friday's better-than-expected UK manufacturing survey.
[ID:nPEK279290] and [ID:nLU86907]
                                
 "The antipodean currencies are amongst the top performers
bolstered in part by encouraging PMI data out of China and in
part by relatively high yields as market participants place
money in (those) currencies over the holiday period," said
Brown Brothers Harriman in a note to clients.
                                
 Optimism was further stoked in the United States after St.
Louis Fed President James Bullard said on Friday unemployment
rates in the United States will likely crest above 9 percent,
but not reach levels set in the early 1980s. [ID:nWAT011387]
 (Additional reporting by Nick Olivari; Editing by James
Dalgleish)