FOREX-Dollar drops broadly; month-end, Chicago PMI weigh

* Dollar falls across the board, month-end flows weigh

* U.S. economy contracts 1.0 percent in Q2

* GDP report shows renewed decline in consumer spending

* Business activity in the U.S. Midwest improves (Updates prices, adds quote, details)

NEW YORK, July 31 - The dollar fell across the board on Friday, pressured by month-end flows and after data showed business activity in the U.S. Midwest in July improved more than expected.

That Institute for Supply Management-Chicago report offset earlier worries from U.S. gross domestic product data that showed a renewed decline in consumer spending in the second quarter.

"Overall, sentiment for the buck is negative," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey.

The GDP report was "backward-looking," he said. "The Chicago PMI index actually came in better than expected, and the details were pretty positive across the board."

The dollar tends to fall on improving economic data as its safe-haven appeal is dulled by an increase in risk appetite.

The ISM's National Association of Purchasing Management-Chicago business barometer rose to 43.4 from 39.9 in June. Economists polled by Reuters had expected a reading of 43.0.

While that still marked a contraction of activity, the pace of contraction slowed. A reading above 50 indicates expansion.

In morning trading in New York, the ICE Futures U.S. dollar index, which tracks its movements against a basket of six currencies, fell 0.6 percent to 78.804.

Earlier in the week, the index stumbled to 78.315, its lowest level of the year, and was on track to post a 1.7 percent fall on the month.

Solid global corporate earnings have triggered a rally in higher-yielding assets this month as risk appetite has picked up, which has stung the dollar and benefited currencies including the Australian dollar, the euro and sterling.

The euro rose 0.7 percent on the day to $1.4170, after hitting a session high of $1.4176, according to Reuters data.

The dollar fell 0.3 percent against the yen at 95.27 yen.

The U.S. economy contracted at a 1.0 percent rate in the second quarter, according to government data on Friday. Analysts polled by Reuters had forecast GDP falling at a 1.5 percent rate.

Despite GDP falling less than expected, investors focused on the consumer spending component, which dropped 1.2 percent after rising 0.6 percent in the previous quarter.

Consumer spending accounts for more than two-thirds of U.S. economic activity.

"The better-than-expected number seems to be offset by a renewed decline in consumer spending," said Ashraf Laidi, chief market strategist at CMC Markets in London.

"This report has written all over it the continued divergence between consumers and businesses. Consumers are still struggling. I don't expect this to be a big boost for risk appetite."

Price action was mixed, with month-end flows exacerbating volatility, analysts said.

"Conditions remain very choppy in the wake of the data. It's the last trading day of the month, and we're still looking at thin summertime conditions. Expect choppy conditions to persist," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

"On balance, a 1 percent decline in GDP is still much, much improved from the previous quarters. That's consistent with the stabilization we've seen in the economy."