FOREX-U.S. dollar rallies as stocks falter

* Dollar gains after previous day's slide

* Euro, high-risk currencies struggle; stocks fizzle

* Swiss franc falls vs euro, dollar

* Chicago PMI data fails to slow dollar buying (Adds comment, U.S. data, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 30 (Reuters) - The U.S. dollar recovered on Friday after steep losses in the previous session as stocks failed to build on big gains following Thursday's data showing the economy grew in the third quarter.

As stocks fell, investors sought shelter in the dollar again and fueled a selloff in higher-yielding currencies, such as the Australian dollar.

"We're seeing some weakness in equities probably due to some month-end selling and that pushed the dollar higher," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "Overall, we're positive on the growth prospects for the global economy, although in the short term there is a bit of uncertainty."

Positive manufacturing data from the Midwest failed to dent dollar buying in the market and traders said part of this may be due to month-end flows into the U.S. currency related to foreign portfolios.

Since the dollar was sold off in October, fund managers needed to buy back the greenback to maintain hedge ratios at the end of the month.

In other currencies, the Swiss franc fell against the euro and dollar amid suspected intervention on behalf of the Swiss National Bank to weaken the currency. Traders said the market got nervous about intervention because the euro had fallen to levels around 1.5080 francs where the SNB had already intervened this year.

Traders said they had not seen orders to buy the euro or dollar from the SNB or the Bank for International Settlements, which sometimes act on behalf of the Swiss central bank. The Swiss National Bank declined to comment. For details, see [ID:nWEA7901]

EQUITIES STILL PRIMARY FX DRIVER

Still, traders said equities will continue to drive the currency market. Weakness in global stocks has halted a rally in the euro and the Canadian dollar, two currencies that have served as proxies for risk appetite, gaining when economic news is positive.

In midday New York trading, the euro fell 0.5 percent to $1.4752. The euro zone currency was down 1.6 percent on the week, so far on pace for its worst weekly performance since mid-April.

The euro continued its decline despite a positive reading on a U.S. Midwest manufacturing report for October. [ID:nN30412996].

"Chicago PMI had a really good headline ... but the details were a little bit mixed and the most concerning one was the employment index, which actually fell on the month," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey.

"So I think the market is taking that report with a little bit of a grain of salt and the equity market is actually lower since that report came out."

For the month the euro was still up 0.8 percent.

Against the Swiss franc, the euro jumped as high as 1.5180 against the Swiss franc, according to electronic trading platform EBS, its highest since mid-October. It was last at 1.5127 francs, up 0.2 percent.

The dollar rose as high as 1.0262 francs and last traded at 1.0258, up 0.7 percent.

The ICE Futures dollar index <.DXY>, a measure of the greenback's value against six major currencies, rose 0.5 percent to 76.295 and was up 1.1 percent on the week, its best weekly gain since June.

The dollar fell 0.6 percent against the yen to 90.88. The yen gained as the Bank of Japan said it would stop buying Japanese corporate bonds and commercial paper, starting a withdrawal process from the credit market. See [ID:nT32693].

That meant the BoJ would be reducing the volume of its currency in the market, a move that should boost the yen going forward.

(Editing by Kenneth Barry)