NZ dollar holds near 13-month high, eyes upside

* Kiwi firmly based on improved risk appetite

* NZ dollar could attempt $0.7200 level

WELLINGTON, Sept 17 - The New Zealand dollar <NZD=> was firmly based just below a 13-month on Thursday as investors showed their confidence in the prospects of economic recovery by picking up high-yield currencies.

The kiwi and Aussie dollars, along with commodities and stocks, vaulted higher on the back of a strong showing by wall Street and data showing U.S. industrial production rose more than expected. See [ID:nN16118540]

In the current environment of growing economic confidence, an analyst saw little to shake the kiwi's strength.

"The global backdrop of improving risk appetite and a generally weak U.S. dollar should keep the NZ dollar supported on dips towards $0.7050-0.7060," said BNZ senior strategist Danica Hampton.

"On the topside, there is very little resistance ahead of 72 U.S. cents."

The kiwi <NZD=D4> was $0.7132/42 at 0500 GMT, compared with $0.7052/62 in late local trade on Wednesday. It traded a tight $0.7124-0.7154 range through the local session, having touched a 13-month high of $0.7157 in Wednesday's offshore trade.

The currency has risen around 4 percent so far this month, and is nearly 46 percent higher since it struck a six-year low in March.

The U.S. dollar index <=USD> was close to a one-year low and is seen ebbing further in the face of firmer stocks, investor confidence, and the likelihood that U.S. rates will stay low for some time. The index's support level is seen at 76, a breach of which would give the kiwi another leg higher.

The kiwi was similarly strong on the cross rate against other major currencies, sitting near three week highs against the yen <NZDJPY=R> and euro <NZDEUR=R>, while touching a 12-and-a-half year high against sterling <NZDGBP=R>.

The trade weighted NZ dollar <=NZD>, the Reserve Bank of NZ's preferred currency measure, was sitting just below a 12-month high.

Local data showed that New Zealand's emergence from recession may follow the central bank's forecast of a "patchy" recovery.

The Bank of NZ-Business NZ performance of manufacturing index (PMI) fell 0.9 points in August after the previous month's improvement. The sector has contracted for 16 months in a row. See [ID:nWEL368500]

New Zealand bonds were weaker, although they trimmed their losses, as U.S. Treasuries edged higher in the Asian session on short covering. The yield on the benchmark NZ 10-year bond <NZ10YT=RR> closed a tick higher at 5.66 percent.

The weekly NZ government bond tender was well bid with the NZ$450 million offered in three maturities more than four times covered. <NZDMO04>