July 30, 2010 –   * Dollar hits 8-month low of 86.17 yen on EBS

* Traders look to U.S. Q2 GDP to slow

* Dollar also hits 6-month low vs Swiss franc

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By Tamawa Desai

LONDON, July 30 (Reuters) - The dollar hit multi-month lows against the yen and Swiss franc on Friday on concerns U.S. economic growth data would reinforce signs the world's largest economy is slowing and on a Fed policymaker's dovish comments.

Dollar bears were looking to U.S. second-quarter GDP due at 1230 GMT as a further opportunity to sell the currency, with growth forecast to slow to an annual 2.5 percent in the three months to June from 2.7 percent in the first quarter.

They also seized on comment by the normally hawkish St. Louis Federal Reserve Bank President James Bullard, a voting member on the Fed's rate-setting committee this year, who said the Fed should buy more Treasuries if the economy worsened.

By 0914 GMT, the dollar was down 0.5 percent at 86.26 yen, after hitting an eight-month low of 86.17 yen on trading platform EBS. Stop-loss sales were triggered at a previous low of 86.25 yen, while bids near 86.20 yen were seen supporting the pair. Option barriers were cited at 86.00 yen, traders said.

"We're in a small window where U.S. economic data is underperforming and keeping pressure on the dollar," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

"Concerns about the U.S. economy and Fed easing will also put U.S. yields on the downside, which is a key driver for dollar/yen," he said.

The yen took in its stride comments by Japanese Finance Minister Yoshihiko Noda who said he was closely watching the market. Deputy Finance Minister Motohisa Ikeda said he was worried about the impact of a rising yen on Japan's exports.

Market players have said they do not seriously expect Japanese authorities to intervene to stem the yen's rise until it goes beyond 15-year highs of 84.82 yen to the dollar.

The dollar also fell to a six-month low against the Swiss franc of 1.0364 francs. That also prompted the Swiss currency to rise against the euro.

The dollar index was flat at 81.658, after touching a three-month low of 81.488 on Thursday.

EURO DIPS

The euro fell 0.3 percent to $1.3040 after hitting a 12-week high of $1.3107 on Thursday, when data showed a jump in euro zone economic sentiment and lower German unemployment.

Options with a strike price of $1.3100 and $1.3150 were set to expire later in the day.

"The grind higher in euro/dollar may continue but it seems there is still plenty of selling interest out there in the market," said Daragh Maher, deputy head of FX strategy at Credit Agricole CIB. "Some softer U.S. data would clearly help the bullish euro case."

Key technical resistance stood around $1.3120/25, which was the 38.2 percent retracement of the December 2009 high at $1.5141 to the June low of $1.1876, traders said.

Technical analysts at Commerzbank said euro/dollar had practically reached that interim target and this would allow for some profit-taking.

In Asian trade, the dollar's fall was primarily driven by month-end selling from Japanese exporters, which overwhelmed buying from several Japanese investment funds launched Friday.

The yen was also underpinned by speculation about fund repatriation flows into the yen related to redemptions of Spanish bonds.

The euro fell 0.9 percent at 112.45 yen.

There was some talk Japanese retail margin traders were buying back the yen ahead of a new leverage cap starting on Aug. 1, when maximum leverage will be limited to 50 times collateral.

Traders will also keep an eye on the Institute of Supply Management Chicago's July index of manufacturing activity, which is expected to fall to 56.5 from 59.1 the previous month.

(Additional reporting by Hideyuki Sano in Tokyo)