* Dollar gives back gains from best run in months
* U.S. GDP better than expected, weighs on dollar
* U.S. jobless claims further boost risk sentiment (Recasts, updates prices, adds quote, U.S. data, changes byline and changes dateline from previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 29 (Reuters) - The dollar weakened against the euro on Thursday after data showed the U.S. economy returned to growth in the third quarter, reducing the greenback's safe-haven allure and sending investors elsewhere for better returns.
The U.S. economy grew at a 3.5 percent annual rate, the fastest pace since the third quarter of 2007, according to preliminary data, and slightly better than forecasts of a 3.3 percent rise.
"The (GDP number) was definitely above expectations," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto. "Though only a first estimate, this will help to arrest some of the strong U.S. dollar buying on risk aversion that we have seen over the past few sessions. GDP will dominate."
The euro surged to session highs after the data at $1.4766 and last traded at $1.4761, up 0.3 percent on the day.
For most of the year, the euro has been viewed as a proxy for risk appetite, gaining when economic data is positive.
Against the yen, the dollar gained 0.7 percent to 91.24 yen. It hit session peaks at 91.33 immediately after the data was released.
Boosting risk sentiment was the fall in U.S. initial jobless claims. Also, continued claims dropped to their lowest in seven months.