* Dollar gives back gains from best run in months
* U.S. GDP better than expected, weighs on dollar
* U.S. jobless claims further boost risk sentiment
(Updates prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 29 (Reuters) - The dollar slid against most
currencies on Thursday after data showed the U.S. economy
returned to growth in the third quarter, reducing the
greenback's safe-haven allure and sending investors elsewhere
for better returns.
The solid gross domestic product reading renewed optimism
about recovery in the global economy, prompting traders to buy
higher-yielding currencies such as the Australian and New
Zealand dollars.
"With Q3 GDP living up to its billing this morning, players
are returning to the carry trade again, driving the dollar and
yen decidedly lower," said Michael Woolfolk, senior currency
strategist at Bank of New York Mellon.
Carry trade involves selling low-yielding currencies such
as the dollar and yen and buying units with relatively higher
interest rates such as the Australian and New Zealand dollars.
Woolfolk said earlier this week market participants were
more bearish on the U.S. economic outlook, which suggested that
dollar gains could be sustained as investors flee risky assets
and seek shelter in the greenback.
"What we saw this morning (from the GDP report) better
supports the notion that the dollar rebound was a temporary
adjustment in positioning and that we are returning to familiar
post-Lehman trends."
According to government data, the U.S. economy grew at a
3.5 percent annual rate, the fastest pace since the third
quarter of 2007 and slightly better than forecasts of a 3.3
percent rise. For more see [].
A raft of weak U.S. data in the last two weeks had dented
expectations about growth prospects, triggering sharp falls in
stocks and broad gains in the dollar and yen.
In midday trading, the euro <EUR=> rose 0.5 percent to
$1.4788 after hitting session highs at $1.4826. For most of the
year, the euro has been viewed as a proxy for risk appetite,
gaining when economic data is positive.
Further boosting investors' inclination for risky trades on
Thursday, analysts said, was news U.S. continued jobless claims
fell to their lowest level in seven months, although some said
the headline figure remained stubbornly high. Initial claims
were at 530,000 in the latest week.
"The (jobless claims) figure remains...above the 500,000
barrier and until it drops below that level the market will not
be fully confident that the recovery has taken hold," said
Boris Schlossberg, director of FX research at GFT in New York.
"The sustainability of this recovery depends on the
improvement of U.S. labor conditions."
The dollar gained 0.8 percent to 91.34 yen <JPY=>, having
hit session peaks at 91.45 after the data was released.
The Australian dollar was up 1.9 percent against the
greenback <AUD=> at US$0.9151, while the New Zealand dollar
rose 1.7 percent to US$0.7325 <NZD=>.
The New Zealand dollar had fallen to a three-week low
earlier after the Reserve Bank of New Zealand dropped its
monetary policy easing bias as expected but faced down market
pressure for an interest rate rise as soon as early 2010.
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(Editing by Chizu Nomiyama)
