Kiwi jumps after EU leaders agree on bank rescue

BUSINESSDESK: The New Zealand dollar surged after European leaders agreed at a two-day summit to use the eurozone’s bailout fund to support Spain's bank sector, easing concerns that the region's debt crisis is spreading.

The kiwi rose as high as 79.33 US cents immediately after the announcement. It traded at 79.41 cents at 5pm up from 78.72 cents just before 8am.

The trade weighted index increased to 71.84 from 71.61.

European Union President Herman Van Rompuy has confirmed that EU leaders will drop the requirement that governments get preferred creditor status on Spain's banks.

Banks will be able to recapitalised directly by bailout funds rather than going through governments. Earlier this month, Spain agreed to take a rescue loan of as much as 100 billion euros to help recapitalise its banking sector.

The summit's main focus was to help Spain and Italy, whose borrowing costs have continued to soar.

"The market was positioned for nothing and this is something," said Chris Weston, market strategist at HiFX. "I think we will see substantial moves in the kiwi and the Aussie.”

German Chancellor Angela Merkel, who has been under pressure to do more to stem the crisis and rejected calls to investigate joint debt, said the decision was a "successful conclusion" to the summit.

The kiwi was little changed after New Zealand's home building consents declined in May, led by a drop in approvals for apartments, even as earthquake-related consents reached their second-highest monthly total since the Canterbury quakes began in September 2010.

Building consents including apartments fell a seasonally adjusted 7.1% to 1304 in May from a month earlier, according to Statistics New Zealand. Excluding apartments, there was a 0.4% fall to 1372.

The kiwi was little changed on 63.16 euro cents at 5pm from 63.24 cents at 8am and dropped to 78.26 Australian cents from 78.41 cents.

It rose to 50.91 British pence from 50.79 pence and jumped to 63 yen from 62.56 yen.