Dollar, U.S. yields rise on rate-hike prospects

NEW YORK (Reuters) - The dollar traded near weekly highs and U.S. Treasury yields rose on Thursday as U.S. gross domestic product data showed a pick-up in consumer spending and encouraged bets that hikes in U.S. interest rates will start as soon as September.

Wall Street was off on disappointment that GDP data was slightly below forecasts, while oil prices shrugged off an earlier drag from the dollar's gains and edged ahead on an unexpectedly big drop in U.S. oil inventories.

The euro fell 0.55 percent against the dollar to $1.0924, which helped the dollar index <.DXY> rise 0.55 percent at 97.511 after touching 97.591, its highest so far this week.

"The latest GDP report confirms the Fed's narrative that the first-quarter weakness was transitory. The bar for them to hiking rates is not very high," said Ian Gordon, G10 currency strategist at Bank of America Merrill Lynch in New York

Data on Thursday showed economic growth in the United States accelerated in the second quarter, backed by solid consumer demand, to a 2.3 percent annual rate. While slightly below economists' expectations for 2.6 percent growth, the data still pointed to firming domestic fundamentals.

The U.S. Federal Reserve on Wednesday described the economy as expanding "moderately," with improvements in housing and the labor market. That left the door open for a possible hike in interest rates in September, which would be the first rise since 2006.

Treasury prices, which move in the opposite direction of yields, were mostly off. Benchmark 10-year Treasuries were down 2/32 of a point in price, pushing the yield to 2.2679 percent.

The Dow Jones industrial average <.DJI> fell 74.99 points, or 0.42 percent, to 17,676.4, the S&P 500 <.SPX> declined 8.97 points, or 0.43 percent, to 2,099.6 and the Nasdaq Composite <.IXIC> eased 25.61 points, or 0.5 percent, to 5,086.12.

Nine of the 10 major S&P sectors fell, with the consumer staples index's <.SPLRCS> 0.61 percent fall leading decliners.

Europe's main stock markets <0#.INDEXE> held on to a third day of modest gains as results from Siemens , Nokia and Deutsche Bank and a rise in euro zone-wide sentiment data boosted the mood. [.EU]

With the dollar flexing its muscles again, commodity markets were back under pressure, with copper , considered a bellwether for global economic activity, trading near a six-year low at $5,268 a tonne.

The broad Thomson Reuters CRB commodities index <.TRJCRB> hit a fresh six-year low before recovering some ground. Gold was flirting with a 5-1/2-year low at $1,093 an ounce as its appeal ahead of potentially higher global interest rates remained in question.

Oil prices, smarting from rising U.S. shale oil output and an easing of sanctions on Iran, were faring slightly better, having bounced on Wednesday following an unexpectedly large weekly drawdown in U.S. crude inventories.

Front-month Brent crude futures were pegged up 1 percent at $53.90 a barrel, and U.S. crude was up to $49.18 having pulled away from Tuesday's 4-1/2-month low. They have both lost more than 15 percent in July.

(Reporting by Michael Connor in New York; Editing by Bernadette Baum)

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