* Euro gains nearly 0.7% to $1.1683 * U.S. dollar index falls to 93.3320 * Sterling gains 0.4% to $1.3793 * BoJ gives another dovish outlook on inflation * Reserve Bank of Australia fuels rate-hike wagers (Revises throughout, updates prices, market activity, adds comment; new byline, changes dateline, previous NEW YORK/LONDON) By David Henry NEW YORK, Oct 28 (Reuters) - The euro rose sharply against the U.S. dollar on Thursday as foreign currency traders sorted through moves in the 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% and was headed for its biggest daily gain since May. It traded at $1.1683 in the afternoon in New York. The dollar index of major currencies lost 0.6% TO 93.3320. The volatility came in a busy day of central bank-driven activity in Australia, Japan and Europe - all ahead of a 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. After starting the week calmly, exchange rates started making bigger swings on Wednesday when the Bank of Canada made hawkish comments. A contributing factor to the increasing volatility, said Issa, 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. Interest yield curves have flattened recently in uneasy bond markets, suggesting 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. Before Lagarde spoke in a press conference, the euro moved little. The ECB in its policy statement had stood, as expected, by its plan to keep buying bonds and hold down interest rates. But 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. More recent U.S. economic data has been stronger, so the report had not been expected to matter much to the dollar. The British pound firmed against the dollar but also slipped against the euro as much as 0.3%. Sterling was last up 0.4% to $1.3793. 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 programme and the Aussie dollar fell in response to speculation the central bank will allow rates to rise earlier than expected. The Aussie initially fell 0.5% after the RBA statement but soon erased those losses and was up 0.4% against the U.S. dollar at 1740 GMT. The Bank of Japan, as expected, stuck with its dovish stance at its meeting and the yen showed no reaction. Against the yen the dollar lost 0.3% to 113.80.. The BoJ cut its consumer inflation forecast for the year ending in March 2022 to 0% from 0.6% and, as expected, the overall takeaway reinforced market bets it will lag other central banks in dialling back crisis-mode policies. In cryptocurrencies, bitcoin rose 4% to $61,031. ======================================================== Currency bid prices at 1:40PM (1740 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index 93.3320 93.8980 -0.59% 3.724% +93.9680 +93.2770 Euro/Dollar $1.1683 $1.1604 +0.69% -4.37% +$1.1692 +$1.1582 Dollar/Yen 113.4800 113.8050 -0.28% +9.84% +113.8600 +113.2600 Euro/Yen 132.57 132.03 +0.41% +4.45% +132.5900 +131.5800 Dollar/Swiss 0.9118 0.9182 -0.69% +3.06% +0.9194 +0.9117 Sterling/Dollar $1.3793 $1.3740 +0.41% +0.98% +$1.3814 +$1.3723 Dollar/Canadian 1.2344 1.2364 -0.17% -3.07% +1.2382 +1.2331 Aussie/Dollar $0.7548 $0.7520 +0.39% -1.87% +$0.7555 +$0.7479 Euro/Swiss 1.0654 1.0653 +0.01% -1.42% +1.0671 +1.0641 Euro/Sterling 0.8468 0.8440 +0.33% -5.25% +0.8470 +0.8423 NZ $0.7202 $0.7171 +0.43% +0.29% +$0.7216 +$0.7153 Dollar/Dollar Dollar/Norway 8.3275 8.4215 -1.12% -3.02% +8.4410 +8.3180 Euro/Norway 9.7299 9.7693 -0.40% -7.04% +9.7977 +9.7108 Dollar/Sweden 8.5200 8.5845 +0.00% +3.95% +8.6046 +8.5197 Euro/Sweden 9.9552 9.9555 +0.00% -1.20% +9.9855 +9.9539 (Reporting by David Henry in New York and Tommy Wilkes in London. Editing by Christina Fincher, Barbara Lewis and Marguerita Choy) Our Standards: The Thomson Reuters Trust Principles.