Dollar pares gain vs. euro after U.S. GDP, confidence data

By Deborah Levine and William L. Watts, MarketWatch

NEW YORK (MarketWatch) -- The U.S. dollar gave up some of its earlier gains against the euro Friday as stocks fell and traders parsed mixed data on growth and consumer confidence.

The greenback was higher versus most major counterparts other than the Japanese yen as investors' willingness to move into riskier currencies and assets took a hit from weak Japanese economic data and remarks by St. Louis Federal Reserve Bank President James Bullard, who warned that the U.S. economy was in danger of copying Japan's deflationary "lost decade."

"Broadly weaker economic data has weighed on risk appetite across the financial markets," said Kathy Lien, director of currency research at Global Forex Trading.

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The euro /quotes/comstock/21o!x:seurusd (EURUSD 1.2831, -0.0042, -0.3263%) fell to $1.3055, after sinking to $1.2978 and still down from $1.3094 late Thursday. The shared currency was temporarily pushed back below the $1.30 level versus the dollar a day after pressing to a three-month high at $1.3106.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 82.23, +0.17, +0.21%) , which tracks the U.S. unit against a basket of major currencies, traded at to 81.535, down slightly from 81.559 in North American trade late Thursday. It rose as high as 81.977 earlier.

The euro recovered much of its losses since April in the past month as many markets retraced big moves made as the European sovereign-debt crisis came to a head. Read about markets in July.

Versus the Japanese yen, the dollar fell to ¥86.40 /quotes/comstock/21o!x:susdjpy (USDYEN 84.1300, -0.0300, -0.0356%) from ¥86.92 Thursday. The greenback fell to ¥85.94 intraday, its lowest level since 1995.

The euro also pared its loss against the yen /quotes/comstock/21o!x:seurjpy (EURYEN 107.9600, -0.3800, -0.3507%) , to ¥112.78 from 113.83 late Thursday.

Since the financial crisis, the dollar and, to a greater extent, the yen have tended to rally when investors turn away from risk, while losing ground when risk appetite is on the rise. Read about U.S. stocks.

The U.S. economy grew at a 2.4% pace in the second quarter, the Commerce Department estimated. That was little slower than many analysts expected, but followed a first-quarter that was revised much higher than initially reported. Read about U.S. GDP.

The rate of expansion in the first quarter was revised up to a 3.7% rise compared with the prior estimate of a 2.7% increase.

"If the U.S. economy continues in its current trajectory the outlook remains uncertain, "there is a good chance that the U.S. economy will fall short of 2 percent growth in the third quarter," Lien said. "As a result, the U.S. dollar extended its losses against the Japanese yen."

The dollar held onto gains after the Reuters/University of Michigan index of consumer sentiment was revised to 67.8 in July. A separate report showed manufacturing activity in the Chicago region this month came in better than expected. See more on confidence survey.

Monthly rebound

The euro has recovered from its 4-year low touched in early June as concerns have abated that a few member countries' sovereign debt problems could undermine the region's banking sector and growth potential.

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