By Bradley Davis Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The euro recovered from a near four-year low against the dollar Thursday after China denied it was reviewing its holdings of euro-zone debt, helping to soothe investor nerves and boost what are considered to be riskier currencies. Worse-than-expected U.S. growth and jobless claims data released Thursday morning took some wind out of the euro's sails, but the common currency still gained nearly 0.5% against the greenback. Even with the disappointing U.S. data, the euro-zone sovereign debt crisis still does not pose a major threat to an entrenching global recovery, said Vassili Serebriakov, foreign exchange strategist at Wells Fargo in New York, so investor sentiment should remain positive in the short term, helping prop currencies closely tied to global growth, such as the Australian dollar, which gained more than 2% against its U.S. counterpart. "Unless this episode turns out to be particularly long-lasting, which we don't think it will be, it will not have a major impact on growth outside of the European region," he said of the sovereign debt crisis. Thursday morning, the euro was at $1.2240 from $1.2193 late Wednesday, according to EBS via CQG. The dollar was at Y90.38 from Y89.92, while the euro was at Y110.55 from Y109.56. The U.K. pound was at $1.4465 from $1.4393. The dollar was at CHF1.1584 from CHF1.1602. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 86.851 from 87.206. The number of U.S. workers filing new claims for unemployment benefits fell last week, but the drop was lower than expected and the figures still don't signal any strong improvement in the labor market. Separately, the U.S. economy grew briskly in the first quarter, but its pace was a little weaker than originally thought. While the U.S. data took some shine off riskier assets, investors remain squarely focused on news out of the euro zone, Serebriakov said. The common currency rebounded from near four-year lows after China's foreign-exchange regulator, in an unusual clarification, denied that it's reviewing its holdings of euro-zone debt, saying Europe will remain one of the key investment markets for China's foreign-exchange reserves of nearly $2.5 trillion, the world's biggest, despite the euro-zone debt crisis. The direct rebuttal of a Wednesday Financial Times report by the State Administration of Foreign Exchange, an agency that rarely answers questions from the media, highlights China's awareness of how the volatile financial markets have become increasingly sensitive to even hints about how China deploys its enormous foreign-exchange reserves. That intense public scrutiny could complicate any major change in investment strategy China might attempt. "The report is groundless," SAFE said. Even with the euro's short-term, modest bounce, the common currency still faces significant hurdles, analysts said. "Lingering sovereign and bank credit risks, plus austerity and the implications for growth [weak relative to the U.S.] and interest rates [ECB on hold for longer] imply that the euro should continue to weaken in the medium term," said analysts at TD Securities in Toronto. Canada Morning The Canadian dollar gained strength overnight, rising more than a penny against the greenback with risk appetite whetted and oil prices drawing higher. The U.S. dollar was trading at C$1.0545 early Thursday, from C$1.0667 late Wednesday. "The world seems to be a safe place to invest again, only two days after a selloff that sparked talk of another global meltdown," BMO Capital Markets said. The Canadian dollar surged 3% from its low two days earlier in an impressive rally early Thursday, boosted by commodity prices and overall market sentiment, but also by rising expectations that the Bank of Canada will raise interest rates when it meets Tuesday, said Matt Perrier, director of foreign exchange sales at BMO in Toronto. -By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com

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