* Dollar index steady, just off highest since mid-Sept
* Growth concerns weigh on European markets
* Fed says in no rush to raise rates but upgrades view on economy
* Madrid shares hit after Argentina defaults again
By Patrick Graham
LONDON, July 31 (Reuters) - Doubts about the health of Europe’s economy dominated trade on its major stock markets on Thursday after a cautious message from the U.S. Federal Reserve did little to stem the dollar’s charge to 10-month highs.
A steady rise for the U.S. currency is the central story for global financial markets so far this month and a jump in U.S. economic growth reported on Wednesday extended the dollar’s gains against the euro to 6 cents since early May.
U.S. growth of 4 percent in annualised terms in the second quarter came at a time when poor company results and concerns over a still escalating situation in Ukraine have added to worries that Europe will take far longer to recover.
Euro zone data on Thursday showed inflation slowing to just 0.4 percent, adding to those doubts, and the pan-European FTSEurofirst 300 index was down 0.7 percent by midday.
“Despite some decent earnings from a number of blue-chips, the market is stuck in a range, with a number of negative catalysts including Argentina’s default at the forefront of investors’ minds,” said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.
Argentina defaulted for the second time in 12 years overnight after talks on a last-minute deal with holdout creditors were dashed.
While debt insurance costs on Thursday suggested an eventual agreement was still seen as possible, the default helped fuel weakness in Spanish and French shares, traders said, with Madrid’s main index down 1.8 percent.
The broader global impact of any default is likely to be limited because Argentina has been effectively shut out of financial markets since its 2002 default.
“We expect contagion to other markets to be fairly limited. This is a highly technical legal case and a selective default,” Steve Ellis, a portfolio manager with Fidelity Emerging Market Debt.
While the dollar gained against its Australian counterpart and other higher-yielding plays, the euro held steady just below $1.34.
A rough ride this week has seen the single currency fall to its lowest since November but it was little changed after the inflation numbers.
The promise of U.S. jobs numbers on Friday was also likely to keep trading in tighter ranges, dealers said.
“The market is now a little bit too far ahead of itself,” said Adam Myers, head of currency strategy at Credit Agricole in London. “There’s not going to be any Fed interest rate rises in the first half of 2015 and that’s what the market is pretty much pricing in at the moment. It will only take a weak payrolls number and we’ll see quite a snapback.”
While the prospect of a solid U.S. recovery gave equities some general support, many Asian shares slipped on profit-taking after making hefty gains since the middle of this month.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3 percent but was still not far from a 6 1/2-year high hit on Wednesday.
The Nikkei average fell 0.2 percent while Australian shares inched up to six-year highs. (Editing by John Stonestreet)