NZ dollar surge stalls; debt weakens

WELLINGTON, Oct 29 (Reuters) - The New Zealand dollar's surge ran out of steam on Wednesday, but the currency remained buoyed by stronger stock markets and improved risk appetite. The kiwi's gains were spurred by the second-best session ever on Wall Street as investors were more assured of further central bank rate cuts. "The NZ dollar followed the Dow higher on the day as risk was put back on the table," said David Croy of ANZ-National Bank in a market note. At 0430 GMT the kiwi was at $0.5709/12, compared with $0.5449/59 in late local trade on Tuesday. It traded a $0.5680 to $0.5798 range during local session. Support was seen around $0.5640 with $0.5800 a strong barrier to any rally. The kiwi's strong gains were pared as the yen, one of the safe haven currencies in market turmoil, edged up after suffering on reports the Bank of Japan could cut interest rates from an already low 0.5 percent at Friday's policy meeting. See [nT95618]. The kiwi eased back to around 55.7 yen from a high of 57.09. Investors were looking to the outcome of the Federal Reserve's policy meeting later on Wednesday, where the benchmark interest rate could be cut by at least half a percentage point from its current 1.5 percent. Earlier on Wednesday, the Federal Reserve said it had set up a $15 billion temporary swap line with the Reserve Bank of New Zealand to address ongoing pressures in U.S. dollar short-term funding. The facility, similar to ones arranged with other central banks in Europe, Canada and Australia, is designed to improve liquidity in global markets. "While there is no need to use the facility right now, it is useful to have this capacity if markets become dysfunctional," RBNZ Deputy Governor Grant Spencer said in a statement. The currency was unmoved by worse-than-expected trade data, with the September monthly deficit of NZ$1.18 billion ($627 million), more than double market forecasts and the worst monthly shortfall in nearly three years. See. The data was seen pointing to more gloom for the New Zealand economy, in recession for the first half of the year. "We estimate that the annual current account balance is likely to have increased to close to 9 percent of gross domestic product in the third quarter, thus returning to levels last seen in 2006," said Deutsche Bank chief economist Darren Gibbs. New Zealand building consents for September and the latest snapshot of business sentiment are due on Thursday. New Zealand bonds extended their losses as firm equity markets reduced the safe haven appeal of debt. The yield on the benchmark 10-year bond, which moves inversely to prices, closed seven basis points higher at 5.97 percent.

(Reporting by Gyles Beckford) .

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