* Dollar index falls to 3-week low, demand for risk rises
* U.S. data suggests economy will recover later this year
* Investors less wary of swine flu, Chrysler crisis
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By Naomi Tajitsu
LONDON, April 30 (Reuters) - The dollar fell broadly on Thursday, hitting a three-week low against a basket of currencies as speculation that the global economic downturn is slowing continued to raise demand for riskier assets.
Concerns about the spread of swine flu waned on the view that the disease thus far would have limited economic impact, and a report of an imminent bankruptcy filing by Chrysler did little to stifle the risk rally, with analysts saying that markets have already priced in the U.S. automaker's failure.
The euro climbed along with high yielders as investors looked beyond a weak headline reading of U.S. growth and focussed on signs the economy may pick up in the coming months, which boosted currencies perceived to be higher risk.
"We've seen the stabilisation in the market, so the downside momentum is slowing, that is what the leading indicators are telling us, be it in the U.S. or the euro zone," said Michael Klawitter, senior forex strategist at Dresdner Kleinwort in Frankfurt.
"Despite the discussion of swine flu, the market no longer sees this as an economic risk, so risk aversion continues to decline, as reflected in equity markets, and in this environment, risk is to the upside."
European shares rose nearly 2 percent in early trade.
Analysts said that optimistic market sentiment would likely continue so long as economic data does not significantly alter the view that the global economy is starting to show signs of recovery.
The dollar index, which tracks the U.S. currency's performance against the nation's biggest trading partners, was 0.8 percent lower at 83.948 by 0754 GMT, having fallen as low as 83.911, its lowest since early April.
Losses in the index were driven by a 0.8 percent climb in the euro to $1.3370, which rose as high as around $1.3385 in early trade to hit its strongest in more than two weeks.
Analysts said that losses in the dollar were also being driven by investors pulling out of U.S. government debt, which has pushed the 10-year U.S. Treasury yield to its highest level since late November.
The dollar was little changed against the yen at 97.62 yen as traders dumped safe-haven positions taken out earlier in the week, when uncertainty over the possible impact of swine flu had sparked higher risk aversion.
Higher-yielding currencies rose, with the Australian and New Zealand dollars each gaining roughly 1.5 percent against the dollar, while climbing nearly 2 percent against the Japanese currency.
RBNZ CUTS RATES
Despite the New Zealand currency's rise against the dollar and the yen, it fell against its Australian counterpart after the central bank cut interest rates by 50 basis points to a record low 2.5 percent and pledged to keep them low.
The Bank of Japan kept rates unchanged at 0.1 percent and stood by its forecast for economic recovery by early next year.
Demand for risk rose after the Federal Reserve tweaked its policy statement to say that the economic outlook was improving, while vowing to keep interest rates at a historic low for a long stretch.
The U.S. central bank's stance was consistent with data showing that the U.S. economy remained on track to improve later this year despite a surprisingly steep 6.1 percent fall in national activity in the first quarter.
Analysts said a record plunge in business inventories suggested that production would have to rise in coming months to fill the inventory gap.
Market participants were watching Chrysler's last-ditch efforts to avoid bankruptcy ahead of a government-imposed restructuring deadline later in the day. The Wall Street Journal reported that those efforts had hit a roadblock, and bankruptcy was "all but certain".
(Reporting by Naomi Tajitsu; Editing by Ruth Pitchford)