Dollar gains ground
Euro and pound fall as overseas rally fades. Dour reading on U.S. economy boosts demand for low-yielding currencies.
NEW YORK (CNNMoney.com) -- The U.S. dollar rose Thursday as investors responded to higher stock prices and a report that showed the nation's economy shrank in the third quarter.
The euro fell 0.6% to $1.2973 from $1.2956 late Wednesday in New York.
Britain's pound traded at $1.6444, up from $1.6375.
Against the yen, the dollar rose more than 1% to ¥98.544 from ¥97.235.
The dollar came under pressure earlier in the session as Asian and European markets rallied. But the greenback recovered as the rally's momentum faded.
"There was some enthusiasm overnight from fed rate cut," said Vassili Serebriakov, currency strategist at Wells Fargo & Company's foreign exchange division. "But some of that enthusiasm is wearing off," he added.
Currency traders often buy higher yielding currencies such as the euro and the pound when stock prices are rising and sell those currencies in favor of lower yielding currencies like the dollar when markets are volatile.
World markets were bolstered by the Federal Reserve's decision Wednesday to lower its benchmark interest rate to 1%. Central banks in Asia also cut interest rates.
The Fed also announced plans to establish $30 billion swap facilities with central banks in emerging markets.
In Asia, major markets posted double-digit percentage gains. Japan's Nikkei index climbed 10% while Hong Kong's Hang Seng index surged 12.8%. In Seoul, the KOSPI shot up a record 12%.
European shares closed mostly higher. Germany's DAX and the FTSE-100 in London both added more than 1% while the CAC-40 gained 0.15%.
Major stock indexes in the Untied States opened higher but trimmed gains at midday as investors responded to a government report that showed the nation's economy shrank in the third quarter.
"The market is taking a step back after the weak GDP figures," said Gareth Sylvester, senior currency analyst at foreign exchange brokerage HiFx.
Gross Domestic Product, the broadest measure of the nation's economy, fell at an annual rate of 0.3% in the third quarter after growing at a 2.8% rate in the second quarter. 
