* Investors resume buying European equities on unhedged FX
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Nov 14 (Reuters) - The euro jumped half a percent against the dollar on Tuesday and is set for its biggest daily rise in a month as investors resumed buying risky assets in Europe on growing expectations that economic growth will remain strong.
The euro zone economy expanded by 2.5 percent in the September quarter compared to the same period in 2016, and more than the United States, data showed on Tuesday.
“Our weekly flow indicators have been picking up some euro positive flows which have been supporting the currency,” said Kamal Sharma, director of G10 FX strategy for Europe at Bank of America Merrill Lynch.
“Over the medium term, a slowdown in bond portfolio outflows as the ECB starts to gradually unwind its QE program should also provide support to the continued inflow into Euro Area equity markets.”
The single currency rose 0.5 percent to $1.1725 against the dollar and was set for its biggest daily rise since Oct. 19. It also scored chunky gains against the sterling and the Japanese yen , rising 0.6 and 0.5 percent respectively.
The single currency peaked at more than a 2-1/2 year high near $1.21 in early September. It fell below $1.16 in early November but has climbed more than 1 percent in the last week.
Morgan Stanley strategists said global equity investors had returned to buy European equities without a currency hedge in November, in a sign of increased optimism by investors about the euro’s outlook.
Risk reversals on currency options were indicating a more constructive outlook for the euro with six-month and one-year euro/dollar reversals indicating further upside.
While policymakers at a star-studded central bank panel shied away from giving any guidance on future interest rates, the European Central Bank’s “forward guidance” on future policy moves has been successful in steering market expectations, ECB president Mario Draghi said.
“Capital flows have picked up in recent days into European risky assets from global investors and with Draghi sketching out a picture of low interest rates and strong growth in recent appearances, the euro’s outlook is becoming robust,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.
Meanwhile the dollar slipped on Tuesday, more than reversing its gains recorded in the previous session as investors took profits.
The dollar index, which tracks the U.S. currency against a basket of six major rivals, was down 0.3 percent at 94.25 .
Against its Japanese counterpart, the dollar was broadly flat at 113.63 yen, remaining below its eight-month high of 114.735 hit last week.
Sterling slipped to its lowest in almost three weeks against the euro at 89.46 pence after UK inflation data came in slightly lower than expected.
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Reporting by Saikat Chatterjee; Editing by Richard Balmforth