* Dollar turns higher as U.S. consumer confidence falls
* Euro falls to 2-week lows, dollar index at 2-week highs
* Markets look to U.S. GDP data, Norges Bank decision
* Risk sentiment still high despite confidence setback (Updates prices, adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 27 (Reuters) - The dollar climbed to two-week highs against the euro on Tuesday in choppy trading, as investors sought shelter in the greenback after data showed U.S. consumer confidence worsened in October, suggesting a global recovery could stall.
A soft confidence report bodes ill for U.S. growth because it indicates lower consumer spending, a factor that drives roughly 70 percent of the economy. That is good news for the safe-haven dollar, but could pressure riskier assets such as stocks and commodities and higher-yielding currencies such as the Australian dollar.
The Conference Board's U.S. consumer confidence index fell to 47.7 this month from 53.4 in September, its weakest since July and well below forecasts for a reading of 53.1. For story, see [ID:nN27236301]
"The consumer data suggests a global recovery isn't as entrenched as we thought it was," said Greg Salvaggio, senior vice president of capital markets at Tempus Consulting in Washington.
In midday trading, the euro fell to $1.4787
Against the yen, the euro fell 0.5 percent to 136.43
"We're of the mindset that the euro is a bit overextended. Every single player in the market is long euros and we're seeing a correction now," Salvaggio said.
The ICE Futures dollar index <.DXY>, a measure of its performance against six other major currencies, rose to 76.323, a two-week high, well above a 14-month low of 74.94 hit last week. The index was last up 0.2 percent at 76.233.
The dollar gained 0.4 percent against the Swiss franc to
1.0225 francs
Just like Monday, it was a complete turnaround for the U.S. dollar, which traded lower in Europe as investors took profits on the greenback's gains from the previous session.
One of the reasons for the dollar's resilience is a heavy short position on the currency accumulated the last few weeks, a sign that the greenback could rally soon. [IMM/FRX].
In addition, recent U.S. economic figures, such as the University of Michigan consumer confidence report and the weekly jobless claims, have not met the market's expectations, raising doubts about the health of the U.S. economy.
"The market is beginning to realize that the recovery scenario priced into the current levels of risk assets may be overly optimistic," said Boris Schlossberg, director of FX research at GFT in New York.
He added that Wednesday's U.S. durable goods data will be the "next critical test of the economy's health" and could well determine if the pullback in risk assets could be sustained for the rest of the week.
Still, most traders are still in a risk-seeking mentality, which could mean that the current weak dollar trend could reemerge.
They cited Thursday's first estimate for third-quarter U.S. gross domestic product, with analysts predicting 3.3 percent growth. That would follow strong growth rates in some euro zone countries, China and Japan.
Market participants also point to Wednesday's decision from Norway, where the Norges Bank is seen raising interest rates for the first time since the global crisis hit less than two years ago.
"The market is looking at that as a sign that a global recovery is underway," which could prompt investors to go back into risky assets, said Amelia Bourdeau, senior currency strategist, at UBS in Stamford, Connecticut.