FOREX-Dollar slides as oil, stocks rally cuts haven demand

* U.S. continuing jobless claims fell, lifting dollar/yen

* Positive Treasury auction results lift risk demand

* Investors await U.S. GDP figures on Friday (Adds quote, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, July 30 (Reuters) - The U.S. dollar weakened against major currencies on Thursday as a rebound in global stocks and commodities on optimism about an economic recovery worldwide dimmed the greenback's safe-haven allure.

U.S. stock indexes .SPX jumped after a string of stronger-than-expected corporate results, while European shares.FTEU3 closed at their highest in nearly nine months.

Commodities also strengthened, with oil CLc1 rising above $66 a barrel. That pressured the yen as well, which tends to fall along with the dollar when there is demand for riskier assets.

A $28-billion seven-year U.S. Treasury auction on Thursday attracted strong demand, easing concerns about financing the massive U.S. budget deficit. The bid-to-cover ratio, which measures demand, was 2.63 after 1.92 on Wednesday.

"Today risk is on and it's helped a lot by the rally in equities," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "The auction results also helped risk appetite to a certain extent."

Indirect bidders, a gauge of foreign interest, accounted for 62 percent, following just 37 percent on Wednesday and 33 percent on Tuesday. For more, see [ID:nN30363691]

In late afternoon trading, the ICE Futures U.S. dollar index, a gauge of the greenback's performance against six other major currencies, fell 0.4 percent to 79.328 .DXY. It hit a 2009 low of 78.315 on Tuesday, before staging a strong rebound on Wednesday.

The dollar's losses were limited, however. Many investors stayed on the sidelines ahead of the first reading of second-quarter U.S. gross domestic product on Friday.

The economy is forecast to have contracted by 1.5 percent after a fall of 5.5 percent in the first three months of the year, according economists polled by Reuters. <ECI/US>

The report "should be a pretty important piece of data for the recovery/recession debate that seems to be ongoing," said Adam Fazio, currency strategist at CIBC World Markets in New York.

He said CIBC is looking for "a much worse reading," and should the GDP data disappoint, the dollar could see "further strength" as investors look for safe-haven investments.

EURO VALUATION

The euro rose 0.2 percent to $1.4061 EUR=, rebounding from a two-week low near $1.40. The euro zone single currency briefly pared gains after the International Monetary Fund said the euro's exchange rate looks "somewhat on the strong side relative to its fundamentals."

Based on exchange rate developments from Feb. 25 to March 25, the IMF report said, "estimates place the euro's overvaluation in a range of 0-15 percent." [ID:nLU681779]

Overall, TD's Osborne said, it has been a poor week for the euro, with the currency's technical fundamentals "looking quite weak as well." Despite gains on Thursday, the euro was down 1 percent this week versus the dollar, on pace for its worst weekly performance since early June.

In addition, analysts at BNP Paribas have cautioned against counting the dollar out against the euro. The bank believes there could be looming disappointment and the trigger to burst the "optimism bubble" could come from a number of sources.

"Fears are growing China will have to rein in lending sharply in the second half of the year...while in Europe, the tightening of credit conditions are the risk," said BNP Paribas in a note.

"Overall, we expect the dollar to rebound over the medium term, bringing the recent rally of pro-cyclical commodity currencies to an end."

The dollar rose 0.5 percent to 95.49 yen JPY=, extending gains after government data showing a drop in continuing claims boosted optimism about the U.S. labor market.

The number of U.S. workers filing new claims for jobless benefits rose slightly more than expected last week, but a gauge of underlying labor trends fell for a fifth straight week. [ID:nN30338472]

The euro was also up versus the Japanese currency, gaining 0.7 percent to 134.30 yen EURJPY=R. (Additional reporting by Wanfeng Zhou; Editing by Chizu Nomiyama)