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FOREX-Dollar at 2-month highs before U.S. growth data

Saikat Chatterjee

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

LONDON, July 26 (Reuters) - The dollar firmed to two-month highs on Friday and looked set for a second straight weekly gain as the market awaited U.S. gross domestic product numbers for the second quarter.

The dollar's advances were also helped by widening yield differentials between U.S. and German debt. Spreads were also holding at two-month highs at 244 bps.

Investors were disappointed by a lack of policy action from the European Central Bank at a meeting on Thursday. Their attention will now shift to a Federal Reserve meeting next week, where policymakers are expected to cut interest rates by a quarter point.

Second-quarter growth figures for the United States due later on Friday will provide a backdrop for the Fed meeting. Expectations are for a 1.8% expansion in U.S. GDP, compared with 3.1% in the first quarter.

"A number below the 1.8% mark should be enough to convince market participants that the Fed will ease policy more than once this year and would weigh down on the dollar," said Konstantinos Anthis, head of research at ADSS in Abu Dhabi.

"Conversely, if the GDP report surprises to the upside - a printing between 2.0% and 2.5% should be regarded as sufficiently bullish - the greenback will look to extend its gains as the odds for more easing down the road will retreat."

Against a basket of its rivals, the dollar rose 0.1% to 97.94, its highest levels since late May.

The euro traded at $1.1136, a recovery from a two-month low of $1.1102 after the ECB decision on Thursday but down 0.1% on the day. For the week, the single currency is down 0.7%.

After the ECB session, President Mario Draghi indicated the bank was prepared to cut rates at its next meeting, in September, and consider other options for easing.

Government bond purchases and a revamped policy message are also likely at the next meeting, four sources close to the discussion told Reuters.

Sterling edged down to $1.2430 and was on course for a 0.6% weekly loss. Cable has stabilised since Boris Johnson became Britain's new prime minister, but uncertainty remains about Britain's negotiations to leave the European Union. (Reporting by Saikat Chatterjee with additional reporting by Stanley White in Tokyo Editing by Mark Heinrich)