Kiwi extends rally as Spanish bailout stokes equities

BUSINESSDESK: The New Zealand dollar extended its rally in local trading as Europe's 100 billion euro bailout for Spain's struggling banking sector stoked investor confidence, and pushed up stock markets around Asia.

The kiwi rose to 77.65 US cents at 5pm from 77.53 cents at 8am, and was up from 76.95 cents on Friday in New York.

The trade-weighted index gained to 70.48 from 70.17 last week.

Stock across Asia rallied in afternoon trading after Spain secured a regional bailout for its banks, with Japan's Nikkei 225 index up 1.9%, Hong Kong's Hang Seng up 2.1% and China's Shanghai Composite up 0.3%.

European Union finance ministers agreed to a Spanish request for loans to recapitalise its banks and provide a buffer to its financial sector.

"There are still risks surrounding the Greece election, but for now, the world is a slightly better place" after the Spanish bailout, said Mike Hollows, trading director at HiFX in Auckland.

"There's underlying demand for the kiwi and it could get back up to 79 US cents."

The New Zealand dollar will probably gain this week, according to four of five strategists in a BusinessDesk survey after the Spanish bank bailout helped quell investors' nerves about the state of Europe's sovereign debt crisis.

A raft of US data will attract investor attention, with producer prices and retail sales due out on Thursday, followed by the consumer price index and initial weekly jobless claims on Friday.

"There's the ongoing shadow of potential QE3, which would cause US dollar weakness," Mr Hollows said, referring to a possible third round asset purchases by the US Federal Reserve.

Traders are waiting for New Zealand's Reserve Bank to make a full monetary policy statement on Thursday, with governor Alan Bollard expected to keep the official cash rate on hold at 2.5%.

The kiwi was little changed at 61.45 euro cents at 5pm from 61.48 cents last week, and rose to 49.90 pence from 49.74 pence.

It increased to 77.81 Australian cents from 77.58 cents last week, and climbed to 61.83 yen from 61.16 yen.