GLOBAL MARKETS-Dollar slips, lifting commodities, on U.S. data

* Surprise contraction in Chicago PMI weighs on markets

* U.S. dollar falls as recovery hopes, quarter-end weigh

* Weak data brings shorter government debt back into vogue

* Oil tops $70 a barrel on U.S. gasoline inventory drop (Updates with close of U.S. markets)

By Herbert Lash

NEW YORK, Sept 30 (Reuters) - The dollar slipped against major currencies on Wednesday, pushing up crude oil, gold and other commodity prices as investors took differing views on weak U.S. economic data that cast doubt on a robust recovery.

An unexpected contraction in Midwest business activity and larger private-sector layoffs than had been forecast sounded a dour note for the end of a quarter in which stocks performed strongly. For more see [ID:nSP474883]

The Dow and S&P 500 both gained 15 percent in the third quarter, and the Nasdaq climbed 15.7 percent. It was the Dow's biggest quarterly gain since the fourth quarter of 1998.

For the day, the three major U.S. indexes fell, but MSCI's all-country world index <.MIWD00000PUS> edged up 0.2 percent.

Oil surged nearly 6 percent to more than $70 a barrel, buoyed by the weaker dollar and a drop in U.S. gasoline inventories last week that hinted at rising demand in the world's largest consumer. [ID:nN30226399]

Currency markets shrugged off the manufacturing report and took heart from a final reading of U.S. gross domestic product in the second quarter, which fell at a slower rate than earlier reported. Dismal economic data often spurs a safe-haven bid.

"Markets are still very optimistic," said Kathy Lien, director of currency research at GFT Forex in New York. The revised GDP figure "indicates that the United States is pretty much emerging out of recession and there's a very good chance we are going to see positive GDP growth in the third-quarter."

The dollar was down against a basket of major currencies, with the U.S. Dollar Index <.DXY> down 0.49 percent at 76.745.

The euro was up 0.34 percent at $1.4632, and against the yen, the dollar was down 0.36 percent at 89.77.

Stock losses were limited by a bounce in technology bellwethers like Cisco Systems Inc , which gained 1 percent. The day's top drags were some of the quarter's best performers, including industrials and banks.

The Dow Jones industrial average <.DJI> was down 29.92 points, or 0.31 percent, at 9,712.28. The Standard & Poor's 500 Index <.SPX> was down 3.53 points, or 0.33 percent, at 1,057.08. The Nasdaq Composite Index <.IXIC> was down 1.62 points, or 0.08 percent, at 2,122.42.

A report showing a steeper-than-expected loss in private-sector U.S. jobs in September reinforced the notion that U.S. consumer spending will remain sluggish even as the economy emerges from the worst downtown since the 1930s.

The data suggested the economy remains too weak to withstand Federal Reserve interest rate hikes, leading short-dated U.S. Treasuries to rise.

"I'm not a believer yet that this is a robust economy," said Robert MacIntosh, chief economist at Eaton Vance Corp in Boston. "What it comes down to is how much of this recovery is going to be sustainable."

MacIntosh said one question mark is whether businesses will ramp up production and spur jobs. Without those elements, consumption will remain weak and hamper economic growth.

The 2-year U.S. Treasury note was up 3/32 in price to yield 0.95 percent, and the benchmark 10-year U.S. Treasury note was down 3/32 in price to yield 3.3 percent.

Gasoline demand over the past four weeks was up by more than 5 percent, according to a weekly U.S. government report. [EIA/S]

U.S. crude futures settled up $3.90 at $70.61 a barrel. London Brent crude gained $3.13 to settle at $69.07 a barrel.

Over the quarter, U.S. crude futures were up slightly from the June 30 close of $69.89 a barrel.

European shares closed lower. The FTSEurofirst 300 <.FTEU3> index of top European shares closed nearly 0.5 percent lower, dragged down by banks and commodity stocks.

U.S. gold futures reclaimed $1,000 an ounce, ending 1.5 percent higher on a combination of a weaker dollar, crude oil rally and simmering geopolitical tensions in the Middle East. [ID:nN30227175]

The December gold contract settled up $14.90 at $1,009.30 an ounce in New York.

Copper closed the third quarter with a 24 percent gain as the dollar's prolonged weakness, position squaring at the quarter's end and ahead of a weeklong Chinese holiday helped fuel a rally in the metal. [ID:nLU90516]

Japan's Nikkei average <.N225> edged up 0.3 percent in cautious trade, while the MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> was up about 0.7 percent and was set to post a second straight quarterly gain. (Reporting by Ryan Vlastelica, Wanfeng Zhou, Edward McAllister in New York; Kirsten Donovan, Dominic Lau and Ikuko Kurahone in London; writing by Herbert Lash; Editing by Diane Craft)