NZ dollar holds above 72c as Greek bailout brought forward

The New Zealand dollar held above 72 US cents as investors' appetite for higher yields was stoked by the prospect of an early aid package for Greece to head off a potential default by the debt-stricken nation.

European Union Economic and Monetary Affairs Commissioner Ollie Rehn said he expects discussions about the aid package for Greece to be finished in the "next few days" and will deliver a "multi-annual programme that will lead to major fiscal and also structural adjustment.

" US and European stocks rallied on the prospect of an early rescue package, along with a more upbeat assessment of the American economy by the Federal Open Market Committee and strong first-quarter earnings for companies on the Standard & Poor's 500 Index.

"EU and IMF officials are trying to knock out a deal for Greece, and that helped reduce the risk of a default in the near-term, which calmed market nerves overnight," said Khoon Goh, senior markets economist at ANZ New Zealand. "There was a bit of a return to risk, with bargain hunters coming out of the woodwork with strong gains across all risk assets" such as the kiwi dollar, he said.

The kiwi rose to 72.34 US cents from 72.24 cents yesterday, and gained to 67.84 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 67.40.

It climbed to 68.05 yen from 67.86 yen yesterday, and edged up to 77.98 Australian cents from 77.86 cents. It increased to 54.64 euro cents from 54.49 cents yesterday, and slipped to 47.18 pence from 47.36 pence.

Goh said the currency may trade between 72.07 US cents and 72.95 cents today, with a wave of data from Japan likely to set the tone for Asian markets today.

"The kiwi managed to shrug off recent weakness and its fairly reasonable support will continue to hold at the current levels - it will be a big ask for it to head towards 73 US cents," he said.

The Reserve Bank of New Zealand held the official cash rate at a record low 2.5 per cent yesterday, and Governor Alan Bollard left markets split as to whether he will start tightening interest rates in June or July.

Faster-than-expected first-quarter inflation across the Tasman has raised the chances of another hike by the Reserve Bank of Australia when it meets next week, which would widen the yield differential between countries to a new record in Australia's favour. The spread is currently 175 basis points.