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Thursday August 28, 2008 - 22:27:30 GMT
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FOREX NEWS-US dollar edges up, cheered by growth data, stocks

Thu Aug 28, 2008 4:04pm EDT

* U.S. Q2 GDP data stronger than previously reported

* Higher stocks, falling oil help boost dollar

* Sterling down after data shows fall in UK house prices (Recasts, updates prices, adds comment, byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 28 (Reuters) - The dollar inched up against the euro and scaled a 2-year peak versus sterling on Thursday, buoyed by data showing a resilient U.S. economy growing at a faster pace in the second quarter than first reported.

A rally in U.S. stocks, led by industrial and financial companies and a decline in oil prices also boosted the greenback, analysts said, trimming losses versus the yen and lifting the dollar against a basket of six currencies.

"Today's U.S. GDP numbers, although they're old, suggest that the positive momentum is carrying over and that has helped the dollar," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York. "This is a far cry from the recession we were worried about a few months ago."

According to Thursday's report, the economy, as measured by gross domestic produce, grew at a 3.3 percent annual rate in the second quarter compared with the initial estimate of 1.9 percent, bolstered by consumer spending and exports.

The report prompted investors to buy back the dollar, with bids accelerating broadly as U.S. stocks climbed and oil prices plummeted midway through the New York session.

"Oil prices remained very important and they have been highly correlated with the dollar. So oil prices coming off intraday highs and stocks gaining have clearly helped the dollar," said Vassili Serebriakov, a currency strategist at Wells Fargo in New York.

In late afternoon trading, the euro <EUR=> was down 0.1 percent on the day at $1.4702, well off the session peak at $1.4811.

Though the euro surrendered gains against the dollar, it remained off the six-month low touched this week due to reduced expectations the European Central Bank will cut interest rates.

The dollar index .DXY was up 0.1 percent at 77.131, not far from the 2008 high of 77.619 seen this week.

Against the yen, the dollar was last at 109.46 yen <JPY=>, little changed on the day but well above the session low of 108.79.


Still, despite the dollar benefiting since late July from growing signs that economic weakness has spread beyond the United States, doubts remain about the ability of mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to raise enough capital to sustain themselves in a troubled U.S. housing market.

Analysts said this could hurt the dollar down the road.

Some analysts were also not too enthused with the strong U.S. GDP number and most have looked past the second-quarter data to expect weakness later in the year.

"Final sales look likely to be very soft in Q3 thanks to very weak consumer spending as the tax rebates wear thin, though inventory acceleration should again secure a solid positive GDP number," said Alan Ruskin, chief international strategist at RBS Global Banking and Markets in Greenwich, Connecticut.

"The point of maximum vulnerability for U.S. GDP looks to be Q4, when inventories build is minimal, the positive trade impact deteriorates as global growth slows, (and) the lagged slowing in business investment and structures is more evident ...," he added.

That contrasts with sentiment around the euro after ECB governing board member Axel Weber said on Wednesday that talk about lower rates was premature, prompting traders to rethink their bets on euro zone rates. The reverberations of these remarks were still felt on Thursday.

In other currencies, sterling was down 0.3 percent against the dollar at $1.8293 <GBP=> after briefly touching a new two-year low at $1.8242, while the euro was up 0.2 percent against sterling at 80.35 pence <EURGBP=>.

The pound fell after a measure of British house prices showed the biggest annual price fall for 17 years while retail sales posted the steepest drop since records began a quarter of a century ago, indicating an increasingly fragile economy. (Additional reporting by Nick Olivari; Editing by James Dalgleish)

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