* Steady fourth-quarter U.S. growth supports dollar
* Recovery in U.S. stock market boosts greenback’s appeal
* Euro on track for worst day vs dollar in three months
* Emerging markets stabilize after central bank rate hikes
By Richard Leong
NEW YORK, Jan 30 (Reuters) - The dollar rose against a basket of currencies on Thursday after data showed the world’s largest economy produced solid growth in the fourth quarter, reviving the appeal of the greenback even against the safe-haven yen and Swiss franc.
The dollar index, which measures the dollar’s value against the euro, yen and four other major currencies, was on track for its biggest single-day rise in four weeks.
The initial reading of fourth-quarter U.S. gross domestic product was at an annualized rate 3.2 percent, matching analysts’ forecasts. This followed a 4.1 percent rise in the third quarter, bringing the year-over-year growth rate to 1.9 percent.
News of moderate U.S. growth helped spark a recovery in the U.S. stock market, adding bids for the greenback. U.S. stocks had sold off in the past week as Wall Street was roiled by anxiety about the troubles spreading from emerging markets.
The GDP reading should also reinforce the notion that the Federal Reserve will continue reducing its monetary stimulus in the coming months, pushing up U.S. bond yields and making the dollar more attractive.
“All these factors are supportive of the dollar,” said Jonathan Lewis, founding principal of Samson Capital Advisors in New York. “While the overall profile on the U.S. hasn’t changed, the economy continued to muddle along on a healing path.”
However, the recent flare-up of political tensions and currency woes in Turkey, Argentina and South Africa limited the dollar’s upward move, with some traders preferring the yen and Swiss franc, analysts said.
“People are not sure whether we have hit the bottom of this emerging market panic,” said Marc Chandler, chief global currency strategist with Brown Brothers Harriman & Co. in New York.
The Turkish lira and South African rand rebounded in New York trading after selling off in the Asian session in response to further reduction in stimulus by the U.S. central bank. Billions of dollars from the Fed’s stimulus program had flooded into Turkey, South Africa and other fast-growing economies.
The Fed, as expected, said on Wednesday that it will reduce its monthly bond purchases by $10 billion in February to $65 billion as policymakers thought the U.S. economy needs less stimulus.
In a Reuters poll, 17 of the U.S. primary dealers surveyed forecast another $10 billion monthly cut in the Fed’s third round of quantitative easing in March.
The Turkish lira and the rand have stabilized after their central banks raised local interest rates in an attempt to shore up investor confidence.
As anxiety that emerging markets’ troubles would spread subsided a bit, investors reduced their safe-haven holdings of the yen, Swiss franc and U.S. Treasuries and German government bonds. They moved some cash back into the dollar, stocks and other riskier investments.
The dollar was up 0.8 percent against a basket of currencies at 81.111 after touching a one-week high.
On Wall Street, the S&P 500 rose more than 1 percent while the tech-laden Nasdaq composite gained near 2 percent.
The euro was down 0.8 percent against the dollar at $1.3551. It was on course for its worst one-day decline against the greenback in three months.
The dollar was up 0.5 percent against the yen at 102.75 yen . It has retraced about 0.8 percent from the seven-week low set on Monday.
The dollar also gained against the Swiss franc, rising 1.0 percent to 0.9030 franc after touching its strongest level against this safe-haven currency in a week.
The euro weakened against the yen and dollar partly on data that showed a key measure of German inflation did not pick up this month as analysts had forecast. This raised expectations that the European Central Bank might have to take additional steps to stimulate the euro-zone economy.
“That’s going the wrong way for inflation in the euro zone,” said Greg Michalowski, chief currency strategist at New York-based FXDD.
The single euro-zone currency fell 0.4 percent to 139.18 yen after hitting 138.85 yen, its weakness level since early December.