NZ dollar dips on government bond sales

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The New Zealand dollar dropped below 62 euro cents for the first time in more than a week after successful sales of French and Spanish government bonds boosted optimism the region's sovereign debt crisis may be contained.

The New Zealand dollar was trading at 62.01 euro cents just before 8.30, up from an overnight low of overnight low of 61.96 cents and 62.37 cents at 5pm yesterday. The kiwi was little changed at 80.23 US cents from 80.19 cents.

The euro rallied after French borrowing costs declined as the nation sold 7.97 billion euros in its first sale of medium and long term debt since losing its AAA rating from Standard & Poor's last week.

Spain sold 6.6 billion euros of bonds due in 2016, 2019 and 2022, exceeding the maximum 4.5 billion euro target set for the auctions. It issued debt due in 2022 at an average of 5.4 percent, down from 6.9 percent in November.

"The euro had a very good night with the market focusing on good bond sales," said Stuart Ive, currency strategist at HiFX. "The yield falling shows there is more resistance in euroland - it was the first real test after the downgrades."

That comes as the Greek Prime Minister Lucas Papademos is set to enter a second day of talks with private creditors in an attempt to lower the nation's debt levels. Papademos is racing to secure a deal to finance a package for the cash-strapped country before a March 20 bond repayment of 14.5 billion euros.

"We will be watching the headlines as per normal," Ive said. "Any news, positive or negative is going to have a massive effect on the currencies."

The kiwi immediately fell against the greenback yesterday after the Consumer Price Index unexpectedly dropped 0.3 per cent in the three months ended December 31, taking the annual pace of inflation to 1.8 per cent, according to Statistics New Zealand.

That was well below the 0.4 percent rise expected in a Reuters' survey of economists, who picked the annual pace to be 2.6 percent. It also slipped against the Australian dollar as the labour market reported its worst performance in almost two decades.

There is no data set for release in New Zealand today.

In Europe, German Chancellor Angela Merkel, French president Nicolas Sarkozy and Italian Prime Minister Mario Monti will meet ahead of a Group of 20 nations meeting between finance ministers this weekend.

It is China's last day of trading before it closes for spring holidays on Monday, Tuesday and Wednesday next week.

The New Zealand dollar rose to 61.91 yen from 61.65 yen yesterday and gained to 77.07 Australian cents from 76.95 cents. It dropped to 51.82 British Pence from 52.03 pence.

The trade-weighted index was down to 71.35 from 71.47 yesterday.