*

U.S. GDP rises more than expected in Q2

*

U.S. jobless claims fall unexpectedly

*

U.S. durable good orders plunge in June

*

Futures market prices higher chance of BOJ rate hike

*

Dollar falls to lowest since May vs Chinese yuan

(Adds comment, graphic, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, July 25 (Reuters) -

The yen edged lower from a 2-1/2-month high against the U.S.

dollar on Thursday, as financial markets stabilized, with investors

looking ahead to next week's Bank of Japan meeting which could see a

potential rate hike.

The Japanese unit this week rallied sharply as market

participants unwound their long-held bets against the currency. At the

same time, a plunge in global stocks in recent sessions had driven

investors toward traditionally safe assets such as the Swiss franc and

yen.

U.S. equities, however, recovered on Thursday after a steep

sell-off in the previous session.

For the week, the yen has risen 2.4%, on track for its best weekly

gain since late April. The greenback was last slightly down at 153.84

yen.

The dollar, however, trimmed losses against the yen and euro after

data showed the world's largest economy expanded faster than expected

and inflation slowed in the second quarter. That reduced brewing

expectations of a larger-than-expected rate cut in September, or a

sudden Federal Reserve easing at next week's meeting.

"The Japanese yen is flatlining on diminished safe-haven demand,

and the speculative fervor behind its recent bull run seems to be

running out of steam," said Karl Schamotta, chief market strategist at

Corpay in Toronto.

"We think markets have gotten a little too far over their skis

given that underlying economic fundamentals don't yet support a rapid

tightening cycle from the Bank of Japan, and that rate differentials

will remain wide even if the Fed begins cutting in coming months."

The rate futures market has priced in a 67.2% chance that the BOJ

will raise rates next week by 10 basis points (bps), up from about 40%

earlier in the week, according to LSEG estimates.

The euro was slightly up against the dollar at $1.0846,

with the dollar index flat at 104.36. The index was at 104.21

just before the release of economic growth data.

Advance estimates showed that U.S. gross domestic product (GDP)

grew at a 2.8% annualized rate in the last quarter. Economists polled

by Reuters had forecast GDP rising at a 2.0% rate.

The personal consumption expenditures (PCE) price index, excluding

the volatile food and energy components, increased at a 2.9% rate

after surging at a 3.7% pace in the first quarter.

Against the Swiss franc, the dollar dropped 0.5% to 0.8806 francs

.

AHEAD OF ITSELF

"The market got ahead of itself on Fed cuts. Before the GDP

number, the market is pricing as if the Fed is going to cut 50 basis

points in September," said Marc Chandler, chief market strategist at

Bannockburn Forex in New York.

He also cited comments from former New York Fed President Bill

Dudley in a Bloomberg column on Wednesday, who said the Fed should cut

rates next week, citing recent employment data.

"The GDP number shows that the Fed is not under that kind of

urgency," Chandler said.

The Fed remains firmly on track to cut interest rates in

September, according to fed funds futures data. The futures market has

also priced in about 68 basis points (bps) of cuts this year, based on

LSEG calculations.

U.S. jobless claims data were also consistent with an economy

still holding up well.

Initial claims for state unemployment benefits dropped 10,000 to a

seasonally adjusted 235,000 for the week ended July 20, the data

showed. Economists polled by Reuters had forecast 238,000 claims for

the latest week.

The only blemish, however, was the U.S. durables report, which

showed durable goods orders fell 6.6% in June on slumping

transportation orders, compared with expectations for a 0.3% rise.

In other currencies, the Australian dollar fell to

US$0.6519, its lowest since early May. It was last down 0.6% against

the greenback at US$0.6541.

China's yuan rallied against the dollar, which fell to

its lowest since early May at 7.205, as the yen's rally spilled over

to the Chinese unit. The dollar was last down 0.2% at 7.245

Currency

bid

prices at

25 July​

07:28

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 07

Euro/Doll 829

Dollar/Ye 96

Euro/Yen 83

Dollar/Sw 78

Sterling/ 829​

Dollar/Ca 97

Aussie/Do 511

Euro/Swis 22

Euro/Ster 95

NZ 73

llar

Dollar/No 83

Euro/Norw 317

Dollar/Sw 65

Euro/Swed 784