NZ dollar rises as Spain eyes bank bailout

The New Zealand dollar rose on speculation Spain may tap European Central Bank funding to bailout the recently nationalised lender, Bankia SA, to prevent a national banking sector collapse.

The New Zealand dollar rose to 75.72 US cents at 8am, up from 75.29 cents at the close of trading in New York on Friday and 75.30 cents on Friday at 5pm. The trade weighted index increased to 69.12 from 68.89 last week.

Bankia, Spain's fourth-biggest bank, will seek 19 billion euros of state funding, more than the 15 billion euro government estimate to shore up the entire sector, after it increased its provisioning for bad debts.

Spain may inject capital into the bank in the form of government debt, that could then be used to raise money from the European Central Bank, the Guardian reported. The speculation helped ease investors' nerves about the parlous state of Spain's financial sector.

"There is some chatter that a plan is being drawn up to rescue the weak banks - its looks reasonably optimistic," said Mike Jones, currency strategist at Bank of New Zealand. "Risk appetite is certainly starting the week on a better footing," which is supporting the kiwi dollar, he said.

"The kiwi can climb a little higher in the short term - if we squeeze up to 76.40 cents we will see some sellers," Jones said.

European leaders meeting in Brussels last week announced no new measures to support the region's growth.

The gathering took place as indebted nation Greece prepares to hold a fresh round of elections on June 17 after the three main political parties were unable to form a coalition following the May 6 elections.

All five Greek political polls released on Saturday favoured the pro-bailout New Democracy Party ahead of the far left anti-bailout party.

"This should support the euro and risk assets for now," Jones said. "There is still a long way to go before the June 17 Greek election and we are likely to see much more political wrangling and uncertainty in the lead up."

Markets in the US are closed today for the Memorial Day holiday.

There is no significant data due out in New Zealand until Wednesday, with the release of April building consents by Statistics New Zealand.

The New Zealand dollar rose to 60.40 euro cents from 60.14 cents at the close of trading in New York and increased to 48.37 British pence from 48.07 pence. The kiwi climbed to 77.35 Australian cents from 77.15 cents and gained to 60.52 yen from 59.97 yen.