Kiwi may extend gains as Chinese growth spurs optimism

BUSINESSDESK: The New Zealand dollar may extend its rally as Chinese economic did not slow as much as people feared, spurring investors to seek higher-yielding, or riskier, assets.

The kiwi traded at 82.09 US cents at 5pm in Wellington, from 82.17 cents at 8am and up from 81.73 cents yesterday. The trade-weighted index advanced to 72.93 from 72.70.

Stocks across Asia rallied after official figures showed China's gross domestic product grew 7.4% in the third quarter from the same period a year earlier. That stoked investor optimism after traders were more pessimistic about the growth prospects for the world's second-biggest economy.

China's Shanghai Composite Index rose 1% in afternoon trading, while Japan's Nikkei 225 index was up 1.7% and Australia's S&P/ASX 200 index gained 1%.

"We were picking this as the bottom for China and it beat our expectations, which is comforting for the medium-term view," says Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "We'll be buying the kiwi on dips up to 83.50 US cents."

Traders are waiting for a two-day European Union leaders' summit to kick off later today in Europe where rescue lines for heavily indebted nations will be a topic for discussion.

Spain, which has been delaying making a formal request for a bailout, had its investment grade credit rating reaffirmed by Moody's Investors Service yesterday, soothing fears about the region's woes.

The kiwi rose to 62.73 euro cents from 62.45 cents yesterday.

A New Zealand government bond sale attracted the most demand since the August 30 auction, with $100 million in debt maturing in 2015 attracting $790 million of bids and $150 million of 2023 bonds receiving $435 million of bids.

The 2015 debt pays annual interest of 6% and sold at an average yield of 2.51%, while the 2023 bonds, paying a 5.5% coupon, attracted an average yield of 3.58%.

"It shows demand hasn't completely dried up and that you can see the kiwi as a good high-yield reserves investment," Mr Speizer says.

The kiwi climbed to 64.97 yen from 64.34 yen yesterday and slipped to 79.04 Australian cents from 79.27 cents. It rose to 50.89 British pence from 50.70 pence yesterday.