* Dollar gives back gains from best run in months
* All eyes on U.S. Q3 GDP at 1230 GMT
* Higher-yielding FX up, stocks supported, yen slips
(Recasts, updates prices, adds quote, changes byline)
By Jamie McGeever
LONDON, Oct 29 (Reuters) - The dollar weakened on Thursday as dealers took profits from its recent rise, and the selloff in equity markets stalled ahead of data that is expected to show the U.S. economy returned to growth in the third quarter.
Higher-yielding currencies more closely tied to economic growth such as the Australian and New Zealand dollars rose, buoyed by a recovery in equities, with traders saying the steep falls on Wednesday and early Thursday had been overdone.
A solid gross domestic product reading could help foster renewed optimism about the global economy and fuel further buying of these currencies and others against the dollar.
But sentiment is fragile after a slew of recent weak U.S. data that triggered sharp falls in stocks and broad gains for the dollar and yen.
"We had some risk aversion yesterday and the dollar stronger, but today we expect a strong GDP number," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich.
"I would expect the dollar to weaken a little bit more," if the GDP number is strong, he said.
Economists estimate that the government's advance estimate will show GDP grew 3.3 percent in the third quarter, which would mark the first quarter to show positive growth since the second quarter of 2008. The data is due at 1230 GMT.
At 1150 GMT the dollar index was down 0.1 percent at 76.35. It has still gained just over 1 percent this week, however, leaving it on course for its biggest weekly gain in nearly five months.
The euro was up 0.1 percent at $1.4727 and was up 0.2 percent at 133.60 yen, recovering from earlier two-week lows of $1.4683 and 132.81 yen, respectively.
Sentiment was helped by a modest recovery on stock markets, with European shares up 0.2 percent and U.S. stock futures rising 0.3-0.4 percent.
Among higher-yielding currencies the Australian dollar was up 0.7 percent against the dollar at $0.9034 and the New Zealand dollar was up 0.8 percent at $0.7260.
The New Zealand dollar had fallen to a three-week low after the Reserve Bank of New Zealand (RBNZ) earlier dropped its easing bias as expected but faced down market pressure for a rate rise as soon as early 2010.
Against the yen, the U.S. dollar rose 0.1 percent to 90.73 yen.
ALMUNIA ON FX
Thursday's data is expected to reveal that the world's largest economy has turned a corner, but U.S. data this week have raised questions about a sustained recovery, with consumer confidence dipping to recessionary levels and new home sales falling unexpectedly.
Given the risk-trade correction under way, some dealers said currency markets might react more to weaker figures than stronger ones, and if so, that could give the dollar a bit more strength short-term.
"We were getting to the point where some currencies were looking heavily oversold on short-term measures and we are now seeing a bit of a comeback," said Naeem Wahid, currency strategist at Bank of Scotland Treasury.
Wahid highlighted the high degree of uncertainty about the likely outcome of the U.S. GDP figures and said a very strong number would enable renewed gains for higher risk currencies, while a particularly weak number would push the market back into risk averse mode.
Also on Thursday, the EU's top economic official said major economies should coordinate to limit volatility in foreign exchange markets.
"What we have to do is to maintain the coordination between the main economies of the world, as we do in the G7 and the G20, and exchange rates should be the product of flexible mechanisms .... in tune with market fundamentals," economic and monetary affairs commissioner Joaquin Almunia said.