* Dollar slides, Fed rate cuts cool some risk aversion
* Higher-yielding currencies gain, yen slides
* Investors await data on U.S. GDP
(Changes byline, adds quotes, updates throughout)
By Veronica Brown
LONDON, Oct 30 (Reuters) - The dollar slid broadly, allowing the euro, sterling, and other high-yielding currencies to rally on Thursday after a Federal Reserve rate cut helped dampen extreme risk aversion and boost European shares.
In a widely expected move, the U.S. central bank cut borrowing costs by 50 basis points to 1 percent and left the door open for more easing by saying that downside risks to growth remain.
Separately, it also approved currency swap lines with central banks in emerging countries, making dollars available to help them deal with the credit crunch, which provided a boost to currencies with higher yields that are seen as being high-risk.
"The Fed threw the kitchen sink at the problem. We've hit an inflection point where the damage is still being done and the problem is still there, but actually we're in control of the fire now," said David Bloom, global head of FX research at HSBC in London.
"But people are sceptical that this is a bear market bounce and some of the capitulation is not totally over," he said.
By 1134 GMT, the euro was up around 1 percent at $1.3085 in volatile trade, pulling further away from a 2 1/2-year low of $1.2329 hit earlier in the week on electronic trading platform EBS.
European shares rose 2 percent, taking a cue from dramatic gains in shares in Asia, where Japan's Nikkei stocks average surged 10 percent.
Higher share prices showed some investors had retreated from an extreme risk averse position after a meltdown in the banking sector triggered waves of selling in past weeks.
Sterling rose 0.8 percent against the dollar to $1.6550, while the Australian and New Zealand currencies each rose roughly 2 percent.
Despite its broad losses, the dollar climbed 1.2 percent to 98.65 yen, extending its recovery from a 13-year trough of 90.87 yen touched on EBS late last week.
YEN RALLY SNAPPED
Slightly diminishing risk aversion knocked the yen broadly, boosting the euro and Australian and New Zealand dollars up more than 3 percent each.
Those currencies were boosted as investors slowed their stampede to unwind carry trades, which used the low-yield Japanese currency to buy assets in higher-yielding ones.
Speculation is brewing that Japan's already low 0.5 percent lending rate may sink even lower, with market participants acknowledging the possibility that the Bank of Japan may cut rates on Friday.
Japan's government on Thursday unveiled a plan worth a total of 26.9 trillion yen ($277.3 billion) to help stimulate the economy, which included 5 trillion yen in spending and an expansion of its bank bailout scheme. Analysts said that market movements remained wildly volatile as investors attempted to price in a global recession while bracing for more fallout from the ongoing turmoil in the financial system, which has brought interbank lending to a halt.
Market participants said that trading in currencies would remain choppy on Thursday, and analyst said that a weaker-than-expected reading of third-quarter U.S. economic growth due later in the day may prompt more dollar selling.
Expectations are for a 0.5 drop in U.S. growth following a 2.8 percent increase in the second quarter.
"Widespread weakness across core economic sectors, including a contraction in consumer spending, negative dynamics in construction and weaker business investment, are likely to reinforce expectations that the economy is at the start of a deep and prolonged recession," said Lena Komileva, G7 economist at Tullett Prebon in a note to clients.
Markets showed limited initial reaction to a bigger-than-expected fall in German unemployment for this month , as well as a plunge in euro zone economic sentiment to its lowest since 1993.
(Reporting by Veronica Brown; Editing by Victoria Main)