* Dollar gives back gains from earlier this week
* U.S. GDP better than expected, dents safe-haven demand
* U.S. jobless claims further boost risk sentiment
* Australian, New Zealand dollars gain more than 2 pct (Updates prices, adds quote, changes byline)
By Wanfeng Zhou
NEW YORK, Oct 29 (Reuters) - The dollar dropped on Thursday after government data showing the U.S. economy grew in the third quarter for the first time in more than a year eroded the greenback's safe-haven allure.
The solid gross domestic product reading renewed optimism about a global economic recovery, prompting traders to buy higher-yielding currencies such as the Australian and New Zealand dollars.
The U.S. economy grew at a 3.5 percent annual rate in the July-September period, snapping four down quarters and exceeding forecasts for a 3.3 percent rate.
"It's definitely all about GDP," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
Given "the correction that we've had over the last few days, some people are looking this as a buying opportunity to get back in (risky trades) and sell the dollar on a bounce," he added.
A raft of disappointing data on the U.S. consumer and housing sectors in recent days had dented expectations about growth prospects, triggering sharp falls in stocks and broad gains in the dollar and yen.
"With Q3 GDP living up to its billing this morning, players are returning to the carry trade again, driving the dollar and yen decidedly lower," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.
Carry trades involve selling low-yielding currencies such as the dollar and yen and buying units with relatively higher interest rates such as the Australian and New Zealand dollars.
In afternoon trading, the euro rose 0.9 percent to $1.4846 after hitting session highs at $1.4850, according to Reuters data. For most of the year, the euro has been viewed as a proxy for risk appetite, gaining when economic data is positive.
Further boosting investors' inclination for risky trades was news U.S. continued jobless claims fell to their lowest in seven months, although some said the headline figure remained stubbornly high.
"The (jobless claims) figure remains ... above the 500,000 barrier and until it drops below that level the market will not be fully confident that the recovery has taken hold," said Boris Schlossberg, director of FX research at GFT in New York.
The dollar gained 0.9 percent to 91.41 yen, having hit session peaks at 91.62, according to Reuters data.
The ICE Futures U.S. dollar index, a measure of the greenback's value against a basket of six other major currencies, fell 0.6 percent to 75.947. Despite its losses on Thursday, the index remains on track for a weekly gain of about 0.6 percent.
The Australian dollar was up 2.2 percent against the greenback at US$0.9172, while the New Zealand dollar also rose 2.2 percent to US$0.7359. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)