* Dollar recovers after strong unemployment, business data
* Yen, Swiss franc retreat after multi-month highs vs dollar
* Brazilian real falls 7 percent (Updates to afternoon U.S. trading)
By Dion Rabouin
NEW YORK, May 18 (Reuters) - The U.S. dollar reversed early losses against a basket of major currencies on Thursday after stronger-than-expected U.S. economic data put the focus back on a widely anticipated increase in interest rates by the Federal Reserve.
The Swiss franc and Japanese yen, both of which are favored as safe-haven investments during times of uncertainty, surrendered gains against the greenback after the number of Americans receiving jobless benefits fell to a 28-year low and the Philadelphia Federal Reserve's Business Index came in at double economists' expectations.
"The U.S. economy is offering a welcome distraction to the negative news flows out of Washington," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "The readings on jobless claims and the Philly Fed index back expectations for faster (second-quarter) growth and a Fed rate hike next month."
Expectations for a rate increase by the Fed had eased in the wake of lackluster data on U.S. inflation and economic growth in recent weeks, as well as President Donald Trump's firing of FBI Director James Comey and news of possible ties between members of Trump's administration and Russia.
Manimbo said he expected the data could help revive investor expectations for a rate hike when the Fed meets next, on June 13-14.
The dollar got a boost in afternoon trading from a spike higher in U.S. Treasury yields that coincided with session highs in U.S. stocks, which rebounded from their worst day in more than eight months.
The dollar rose 0.65 percent against the yen, which registered its biggest daily gain against the dollar since July on Wednesday. The greenback earlier touched a more than three-week low against the Japanese currency.
The euro fell 0.55 percent against the dollar, to $1.1095.
The Swiss franc earlier hit its strongest level against the dollar since Trump's election in November. It was last down 0.15 percent.
The British pound fell 0.25 percent against the dollar, to $1.2931, tumbling after what analysts said was likely a technical selloff. Sterling had broken through $1.30 for the first time in nearly eight months.
The dollar index, which tracks the greenback against six currencies, rose 0.35 percent.
The Brazilian real fell more than 8 percent on news that President Michel Temer was recorded discussing payments to silence testimony by a potential witness in a wide-ranging corruption probe known as Lava Jato. The dollar was last up 6.1 percent at 3.33 reais. (Editing by Bernadette Baum and Leslie Adler)