FOREX-Dollar down vs euro, yen after US GDP data

* Dollar falls vs euro and yen after U.S. GDP data
* S&P downgrades Spanish debt, Spanish yields above 6 pct
* Italy bond auction goes smoothly, tempers worry
* Yen firmer as Bank of Japan easing measures underwhelm

NEW YORK, April 27 (Reuters) - The dollar slumped to
multi-week lows against the euro and the yen on Friday after a
report showed U.S. economic growth cooled in the first quarter,
raising the prospect of further stimulus from the U.S. Federal
Reserve.
The weaker-than-expected growth showed businesses cut back
on investment and restocked shelves at a moderate pace at a time
when investors are worried that a lack of job creation will stem
consumer spending.
Trading volumes dropped off on Friday. Investors seeing the
month end are preparing for next week's U.S. non-farm payrolls
report, which will offer an important clue that could either
confirm the weaker than expected GDP report or hint at the
possibility for upward revisions.
The euro was already higher after a smooth Italian bond
auction eased concerns over peripheral euro-zone debt markets.
The sale offset jitters sparked by a tw o-notch do wngrade of
Spain's sovereign debt and dismal Spanish economic data.
The U.S. economic data added to the dollar's woes, sending
it to its lowest since mid-April against the yen.
"GDP was worse-than-expected, and that increases the chances
of the Fed launching QE3," said Daniel Hwang, senior currency
strategist at Forex.com in New York. "Markets shrugged off the
Spanish rating action, and we could see risk assets continue
upward momentum on expectations of a Fed move. This is negative
for the dollar as it increases QE3 chances."
A third round of Fed quantitative easing, known as QE3,
would be negative for the dollar as the bond purchases
effectively boost supply of the currency.
The euro reached a three week high of $1.3270 and
last traded at $ 1.3263, up 0 .42 p ercent, well off the session
low of $1.3155, according to Reuters data.
"There is still some room to go against the euro," said Joe
DeGeronimo, chief dealer at SMBC, citing stop-loss barriers in
the $1.3275/80 area followed by $1.33.
"The move earlier from $1.3220 to $1.3250 I think was from
Middle East and sovereign fund buying. They've been buyers on
the dips, and since then we've traded tight ranges," he said.
The dollar was last down 0.73 percent against the yen at
8 0.42 yen, with the session low at 8 0.35 yen.
The euro was already bid as the New York session began
after Italy sold 5.95 billion euros of bonds, in an auction
which analysts said went well.
That overcame a slew of bad news in the last 24 hours for
the euro zone. Standard & Poor's cut Spain's credit rating to
BBB-plus from A late on Thursday and gave it a negative outlook,
warning it expects the government's budget deficit to
deteriorate even more than previously thought due to economic
contraction.
Spanish data released Friday highlighted the extent of
economic weakness in the highly indebted country, with nearly a
quarter of the nation's workforce unemployed and retail sales
falling for the 21st consecutive month.
Spanish 10-year bond yields spiked above 6 percent on
Friday. Investors sold and sought the safety of German bond
futures, sending them to record highs. Spanish yields have since
slipped back to the 5.90 percent range. <GV D/EUR>
"If you look at the downgrade and economic data out of
Spain, it makes pretty grim reading," said Jeremy Stretch, Head
of European FX Strategy at CIBC Global Markets.
There was also talk of quasi official Swiss buying of euros
against the Swiss franc which was keeping the euro buoyed
against the dollar. The euro was little changed at 1.2011 Swiss
francs with the session low of 1.2001 francs.
That was just off the floor set by the Swiss National Bank
of 1.2000 Swiss francs, a level they have drawn as the line in
the sand for franc strength against the euro.
The dollar hit a three-week low on the Swiss franc.

YEN FIRMS
The yen was firmer against the dollar and the euro after
further easing measures from the Bank of Japan were seen as
incremental rather than significant steps to try to dig the
Japanese economy out of the doldrums.
The Bank increased bond buying by 10 trillion yen, expanding
the target of its bond purchases to bonds with up to three years
left to maturity from those with two years or less, and
increased its buying of exchange-traded funds.
The Bank also extend ed the period of its asset purchases to
June next year from December.
Japanese exporters were quick to buy the yen after weeks of
hype around the possibility of the BOJ easing policy. M arket
players said the BOJ's easing wasn't enough to push the
greenback toward March's 11-month peak against the yen.
The euro gained 0.5 percent against the dollar for the week,
its second straight week of gains, while the dollar slid 1 .349
pe rcent against the yen.
Sterling rose 0.4 percent to $1.6241, its tenth straight day
of gains.