Australia dollar index flirts with 28-yr highs

* Aussie dlr index faces stiff technical resistance

* RBA review gives banks a clean bill of health

* NZ's Fonterra raises its forecast payout

(Updates to late local trade)

By Gyles Beckford and Ian Chua

SYDNEY/WELLINGTON, March 27 (Reuters) - The Australian dollar matched 28-year highs against a basket of major currencies on Wednesday, challenging a huge chart barrier as upbeat U.S. data bolstered the outlook for global growth while Cyprus' bailout scheme hung heavy over the euro.

Much of the recent rise in the Aussie's trade-weighted index

was also due to weakness in the yen, the second biggest weight on the index, as markets positioned for the Bank of Japan to deliver aggressive stimulus policies.

The index's strength also reflected a stable outlook for local interest rates and Australia's relatively positive outlook versus the rest of the developed world, in sharp contrast to the euro zone where Cyprus became the forth member to be bailed out.

"The recent step up has been assisted by a re-exertion of traditional fundamentals-rate differentials and improved global growth/Chinese prospects," said Su-Lin Ong, strategist at RBC.

Ong pointed to the Aussie/U.S. 2-year bond yield spread, which recently blew out to the widest in around a year as local yields rose, while U.S. yields stayed near zero.

The index climbed to 79.3, matching a peak from March last year and up over 3 percent just this month. A push higher from here would take it to territory not seen since February 1985.

This level has frustrated rallies on repeated occasions since mid-2011 so a break would be very bullish from a technical perspective.

Against the yen, the Aussie was at 99.21 , having recently scaled a 4-1/2 year peak near 100.00. The Aussie traded at $1.0466 , not far from a two-month high of $1.0497 set overnight. On the euro, it hovered near a 4-1/2 month high at A$1.2225 per euro .

There was little market reaction to the Reserve Bank of Australia's semi-annual financial review, which gave a clean bill of health to the banking system and found households were well placed to meet their debt obligations.

The New Zealand dollar was at $0.8374, having earlier risen to a one-month high of $0.8397 as dairy cooperative Fonterra, the country's biggest exporter, raised its forecast payout for the season.

The kiwi is seen supported initially at $0.8345, the 50-day moving average and below that to around $0.8330, with resistance at $0.8415, the late February high.

Against the yen, the kiwi edged higher to 79.41 and was back within sight of a 4-1/2 year high of 79.91 seen two weeks ago. The euro bought NZ$1.5331 , after briefly dipping to a seven-month low around NZ$1.5302.

New Zealand government bonds closed with a bid tone, with yields 7 basis points lower.

Australian government bonds were also firmer with the three-year contract 0.06 points higher at 97.020, while the 10-year contract was up 0.055 points to 96.465.

(Edited by Wayne Cole; Australia and New Zealand bureaux)

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Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX