* GRAPHIC-World FX rates in 2018: tmsnrt.rs/2egbfVh (Recasts, adds analyst quote, updates prices)
By Kate Duguid
NEW YORK, Oct 26 (Reuters) - The U.S. dollar followed Wall Street lower on Friday, falling from the two-month high hit earlier in the day after news of stronger-than-ecpected third-quarter gross domestic product.
U.S. stocks were off their lows late Friday, but remained down for the day, as concerns about a slew of disappointing earning forecasts persisted, showing how tariffs, rising wages and higher borrowing costs as well as jitters over geopolitical events are hurting companies.
"People are still worried about the U.S. earnings season," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group.
The dollar index fell as much as 0.57 percent against a basket of six rivals as Wall Street sold off, last at 96.43 . The move ended a losing streak for the euro, which has fallen 1.85 percent this month on pessimism about Italian budget talks - and fear of contagion across the bloc. Against the euro , the dollar fell as much as 0.71 percent, last at $1.140.
Safe-haven currencies moved in lock-step with U.S. stocks. In afternoon trade the Japanese yen was up for the day, but as stocks recovered, the yen had retraced almost all the gains it had made on the initial dollar drop. The move in the Swiss franc was similar, weakening in the afternoon after having risen to its highest since Aug. 20 this morning.
The U.S. economy slowed less than expected in the third quarter, the Commerce Department reported, as the strongest consumer spending in nearly four years and a surge in inventory investment offset a tariff-related drop in soybean exports. Net exports took 1.8 percent off of the GDP figure, said Greg Anderson, global head of FX strategy at BMO Capital Markets.
The exchange of tariffs between the United States and China has lifted the value of the dollar, which serves as a safe haven in times of geopolitical turmoil. While a strong currency benefits U.S. assets, it also raises the cost of imports and exports, which can slow growth.
The GDP report also showed the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, missed expectations after it increased 1.6 percent in the third quarter. The core PCE price index rose at a 2.1 percent pace in the April-June period.
Soft inflation data also boosted the dollar. Despite the strong headline growth, it may give the Federal Reserve a reason to pause its rate-hiking cycle at the Federal Open Market Committee meeting in December, said Anderson.
Reporting by Kate Duguid and Tom Finn; Editing by Diane Craft