FOREX-U.S. dollar falls for 2nd day, but outlook remains positive

    * U.S. data mixed as growth seen stalling in Q3
    * Commodity currencies rise
    * Sterling licking wounds, heads for worst week in a month
    * Graphic: World FX rates tmsnrt.rs/2RBWI5E

 (Recasts, adds new comment, U.S. data, FX table, byline, dateline, updates prices)
    By Gertrude Chavez-Dreyfuss and Ritvik Carvalho
    NEW YORK/LONDON, Oct 1 (Reuters) - The dollar fell for a second straight session on Friday, tracking
declines in U.S. Treasury yields, as investors pared  back their positions after recent sharp gains, though
the decline was viewed as temporary.
    U.S. 10-year Treasury yields were last at 1.484%, down four basis points.
    For the week, the dollar index was on track for its largest percentage gain since late August, as
investors looked to the Federal Reserve's reduction of asset purchases in November and a possible rate hike
late next year.
    "The Fed in no uncertain terms has turned hawkish at the September meeting. They have also raised the
inflation forecast, which is actually above consensus expectations, which tells you that they are probably
more nervous about inflation than they let on," said Mazen Issa, senior FX strategist, at TD Securities in
New York.
    "We expect Treasury yields to rise further and within that we expect real yields to do the heavy lifting
and that's notable for the dollar. It will certainly be a U.S.-led real rates back-up, which should be
dollar-positive."
    Cautious market sentiment due to COVID-19 concerns, wobbles in China's growth and a Washington gridlock
ahead of a looming deadline to lift the U.S. government's borrowing limit has lent support to the dollar,
seen as a safe-haven asset.
    In mid-morning trading, the dollar index slipped 0.3% to 94.047, having gained 0.8% this week,
the largest weekly rise since late August.   
    Friday's batch of U.S. data was mixed, adding to weakness in the dollar ahead of the weekend.
    U.S. consumer spending increased more than expected in August, posting a 0.8% rise, but consumption was
weaker than initially thought in July, dipping 0.1% instead of gaining 0.3%.
    Inflation remained elevated, but not by much. Core inflation as measured by the personal consumption
expenditures (PCE) price index, excluding the volatile food and energy components, was up 0.3% in August,
unchanged from previous month.
    In manufacturing, data was more upbeat. The Institute for Supply Management (ISM) said its index of
national factory activity increased to a reading of 61.1 last month from 59.9 in August.
    In other currencies, the euro was flat at $1.1587, falling about 1.1% for the week, on pace
for its biggest percentage fall since June.
    The yen bounced back against the dollar from a 19-month low overnight, with the greenback last
down 0.3% at 110.98 yen. 
    Commodity currencies rallied against the dollar on Friday.
    The Australian dollar gained 0.5% to US$0.7266 and  slumped 3.6% in the third quarter - the
worst performance of any G10 currency against the dollar - as prices for Australia's top export, iron ore,
fell sharply. 
    Sterling was also an underperformer last quarter, dropping 2.5%, and looks set to log its worst week in
more than a month, amid growing supply chain problems.
    Sterling was last up 0.6% at $1.3560, just above a 9-month low at $1.3516.
    
    ========================================================
    Currency bid prices at 11:14AM (1514 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change                   
                                              Session                                             
 Dollar index                 94.0670        94.3120     -0.24%         4.541%        +94.3950    +93.9850
 Euro/Dollar                  $1.1595        $1.1578     +0.15%         -5.09%        +$1.1607    +$1.1564
 Dollar/Yen                   111.0800       111.2800    -0.18%         +7.51%        +111.4850   +110.9050
 Euro/Yen                     128.76         128.82      -0.05%         +1.45%        +129.0400   +128.5600
 Dollar/Swiss                 0.9302         0.9317      -0.16%         +5.14%        +0.9337     +0.9283
 Sterling/Dollar              $1.3549        $1.3477     +0.54%         -0.83%        +$1.3570    +$1.3434
 Dollar/Canadian              1.2665         1.2685      -0.11%         -0.49%        +1.2738     +1.2645
 Aussie/Dollar                $0.7260        $0.7227     +0.46%         -5.62%        +$0.7274    +$0.7193
 Euro/Swiss                   1.0784         1.0784      +0.00%         -0.21%        +1.0808     +1.0773
 Euro/Sterling                0.8557         0.8593      -0.42%         -4.25%        +0.8623     +0.8547
 NZ                           $0.6933        $0.6897     +0.48%         -3.50%        +$0.6944    +$0.6879
 Dollar/Dollar                                                                                    
 Dollar/Norway                8.6285         8.7400      -1.24%         +0.52%        +8.7820     +8.6285
 Euro/Norway                  10.0062        10.1205     -1.13%         -4.40%        +10.1728    +10.0077
 Dollar/Sweden                8.7635         8.7585      +0.14%         +6.92%        +8.7878     +8.7392
 Euro/Sweden                  10.1603        10.1460     +0.14%         +0.85%        +10.1755    +10.1403
 
========================================================
    Currency bid prices at 11:14AM (1514 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change                   
                                              Session                                             
 Dollar index          94.0670        94.3120     -0.24%         4.541%        +94.3950    +93.9850
 Euro/Dollar        $1.1595        $1.1578     +0.15%         -5.09%        +$1.1607    +$1.1564
 Dollar/Yen         111.0800       111.2800    -0.18%         +7.51%        +111.4850   +110.9050
 Euro/Yen           128.76         128.82      -0.05%         +1.45%        +129.0400   +128.5600
 Dollar/Swiss       0.9302         0.9317      -0.16%         +5.14%        +0.9337     +0.9283
 Sterling/Dollar     $1.3549        $1.3477     +0.54%         -0.83%        +$1.3570    +$1.3434
 Dollar/Canadian     1.2665         1.2685      -0.11%         -0.49%        +1.2738     +1.2645
 Aussie/Dollar       $0.7260        $0.7227     +0.46%         -5.62%        +$0.7274    +$0.7193
 Euro/Swiss         1.0784         1.0784      +0.00%         -0.21%        +1.0808     +1.0773
 Euro/Sterling      0.8557         0.8593      -0.42%         -4.25%        +0.8623     +0.8547
 NZ                  $0.6933        $0.6897     +0.48%         -3.50%        +$0.6944    +$0.6879
 Dollar/Dollar                                                                                    
 Dollar/Norway       8.6285         8.7400      -1.24%         +0.52%        +8.7820     +8.6285
 Euro/Norway        10.0062        10.1205     -1.13%         -4.40%        +10.1728    +10.0077
 Dollar/Sweden         8.7635         8.7585      +0.14%         +6.92%        +8.7878     +8.7392
 Euro/Sweden        10.1603        10.1460     +0.14%         +0.85%        +10.1755    +10.1403
 
    
 (Reporting by Gertrude Chavez-Dreyfuss in New York and Ritvik Carvalho in London; Additional reporting by
Tom Westbrook in Singapore and Anushka Trivedi in Bengaluru; Editing by Nick Macfie, Chizu Nomiyama and
David Evans)