NZ dollar eases on soft GDP data; bonds firms

* Kiwi touch lower after weak data but still above $0.64

* NZ economy shrank 1 pct in Q1, longest recession on record

* Moves above $0.65 expected to meet resistance

* NZ dollar virtually unchanged on week

WELLINGTON, June 26 - The New Zealand dollar <NZD=> gave up ground on Friday after data showed the economy in its deepest and longest recession on record, backing views the central bank will leave rates low for a long time.

The kiwi initially dipped around half a cent after first quarter gross domestic product came in 1 percent lower on the previous quarter, the fifth consecutive quarter of contraction.

It later trimmed losses against the U.S. dollar, but posted bigger losses against against other majors.

"The NZ dollar has tend to underwhelm relative to the other currencies as the weaker-than-expected Q1 GDP has highlighted the fragility of NZ's green shoots," said BNZ senior currency strategist Danica Hampton.

The New Zealand dollar was trading at $0.6452/56 at 0500 GMT compared with $0.6414/24 late in the local session on Thursday. It traded a narrow $0.6412-0.6468 range during the domestic session.

The first-quarter contraction matched the central bank's forecast and was not seen altering the RBNZ's monetary policy. For GDP coverage see [ID:nWEL394407]

"We do not expect today's GDP data to bring the RBNZ back into play. The outturn was in line with their June forecast, and the RBNZ has already aggressively front-loaded policy partly in anticipation of negative news such as today's," said ANZ-National economist Philip Borkin.

The kiwi fell more than half a cent against the Aussie <NZDAUD=R>, which is seen as having both better growth prospects and a more attractive yield, and around 0.6 percent against the yen <NZDJPY=R>.

However, the New Zealand was relatively well supported against the U.S dollar, which was broadly weaker as investors turned back to risky assets.

"A generally weaker U.S. dollar theme has materialised through the Asian session, there's also been some chatter about real money demand (for the kiwi) out of Asia possibly related to 'Toshin' bond launches," Hampton said, adding that kiwi would likely encounter selling pressure on any move through $0.6500.

Next week's local data includes May month trade and building consents data on Monday and the National Bank's latest business confidence survey on Tuesday, all of which will be eyed for signs the economy has improved since the first quarter.

New Zealand swap rates eased a touch, but showed little reaction to the GDP data. Two-year swaps <NZDSM3NB2Y=> were six basis points lower at 3.82 percent and five-year swaps <NZDSM3NB5Y=> 6 basis points lower at 5.36 percent.

Bank bill futures <0#NBB:> were firmer with yields, which move inversely to prices, a couple of basis points lower along the curve.

New Zealand government debt was also firmer with the yield on the benchmark NZ 10-year bond <NZ10YT=RR> five basis points down at 6.02 percent.