NEW YORK, Oct 28 (Reuters) - The dollar held losses to the euro and British pound late on Thursday as currency traders digested moves in interest rate markets, comments by the European Central Bank President Christine Lagarde and a weaker-than-expected U.S. economic report. The euro rose nearly 0.7% against the dollar and was headed for its biggest daily gain since May. It traded at $1.1681 in the late afternoon in New York. Sterling gained nearly 0.4% to $1.3788. The dollar index of major currencies lost nearly 0.6% to 93.3580. Foreign exchange markets have become volatile around central bank activity. Bigger moves started on Wednesday with hawkish comments from the Bank of Canada and were followed on Thursday with an action by the Reserve Bank of Australia and comments by the ECB - all ahead of meetings next week of the U.S. Federal Reserve and the Bank of England. "The market is very much triggered and sensitive to inflation worries and this notion that central banks are behind the curve," said Mazen Issa, senior currency strategist at TD Securities.A contributing factor to the increasing volatility, Issa said, is the approaching end of the month when more investment managers rebalance their portfolios across currencies. As central banks each chart adjustments to monetary policies adopted during the pandemic, traders are trying to predict the direction of interest rates and inflation-adjusted yields across currencies. Some of the currency volatility is likely a spill over from uneasy interest rate markets. Recently flattening yield curves have suggested to some that central banks will have to sacrifice support for the pandemic recovery by allowing interest rates to rise to try to hold back inflation. Euro zone yields rose sharply on Thursday. Before Lagarde spoke in a press conference, the euro moved little on the ECB policy statement. The ECB had stood, as expected, by its plan to keep buying bonds and hold down interest rates. read more Some saw Lagarde"s comments as not being as forceful in affirming the ECB"s dovish position as markets expected. "President Lagarde failed to give enough pushback against market expectations of rate hikes next year," Rabobank economists wrote in a note. The dollar got no help from a U.S. government report that gross domestic product grew at only a 2% annualized rate in the quarter ended in September. Economists polled by Reuters had forecast a 2.7% rate. read more More recent U.S. economic data has been stronger, so the report had not been expected to matter much to the dollar. Though the British pound firmed against the dollar, it slipped against the euro as much as 0.3%. The pound has been buffeted recently by speculation over whether the Bank of England would proceed with an interest rate hike at its meeting next week. Early on Thursday, the Reserve Bank of Australia declined to buy a government bond at the heart of its stimulus program and the Aussie dollar fell in response to speculation the central bank will allow rates to rise earlier than expected. read more The Aussie initially fell 0.5% after the RBA statement but soon erased those losses and was up 0.3% against the U.S. dollar at 1924 GMT. In cryptocurrencies, bitcoin rose 3% to $60,040.