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FOREX-Dollar rises for 3rd day on upbeat U.S. data, higher risk appetite

* U.S (Other OTC: UBGXF - news) . GDP 2nd estimate, jobless claims data help dollar

* Stocks rise after Wall Street rally

* Fading risk of September Fed hike supports risk sentiment (Updates prices, adds comment, U.S. data, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 27 (Reuters) - The dollar advanced for a third consecutive session on Thursday, bolstered by data showing a much stronger U.S. economy than had been thought and by gains in global equities, which benefited from improving risk sentiment.

U.S. data showing falling jobless claims and a faster growth rate than had initially been estimated in the world's largest economy underpinned the dollar.

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The reports, however, did little to change the view that the Federal Reserve would delay raising interest rates given recent market turmoil and a slowdown in China's economy.

"If we take China, and global equities falling, out of the equation, what the data does is solidify the view that the U.S. economy is and has been improving," said John Doyle, director of markets at Tempus Consulting in Washington.

"Even (Taiwan OTC: 6436.TWO - news) if we don't raise rates in September and it gets kicked out to December or even early next year, raising rates is still the conversation that we're having. We are still moving toward a normalization of U.S. policy."

Data showed that U.S. gross domestic product expanded at a 3.7 percent annual pace in the second quarter instead of the 2.3 percent rate reported last month. Further brightening the U.S. picture was a fall in U.S. jobless claims to 271,000 last week, the 25th straight week below 300,000.

Meanwhile, comments on Wednesday from New York Fed President William Dudley, a voting member of the rate-setting Federal Open Market Committee, downplaying prospects of a September rate hike helped improve sentiment. Investors unwound recent moves that had lifted both the yen and the euro.

On Thursday, Kansas City Fed President Esther George, who had argued for a near-term rate increase, echoed Dudley's sentiment. She (Munich: SOQ.MU - news) told Fox Business News central bankers should take a "wait-and-see" approach to tightening policy due to a financial market sell-off and China's slowdown.

In mid-morning trading, the dollar was up 0.6 percent against a currency basket at 95.663. The index has risen roughly 2.5 percent the last three days.

The dollar was up 0.4 percent at 120.36 yen, well above a seven-month low of 116.15 yen struck this week. The euro was 0.5 percent lower against the dollar at $1.1259, well below this week's seven-month high of $1.1715.

A recent spike in risk aversion had triggered short-covering in the yen and the euro, which are popular funding currencies for carry trades. Such trades involve selling low-yielding currencies to buy higher-yielding currencies and assets. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by James Dalgleish)