NZ dollar firmer as risk demand solid; bonds weak

* Kiwi dollar firmer but capped beneath $0.72

* Risk appetite steady, but gains limited by Aussie strength

WELLINGTON, Sept 29 - The New Zealand dollar <NZD=> firmed on Tuesday as confidence in a global recovery fuelled investor demand for high-yielding currencies and other riskier assets.

The kiwi's gains were capped just beneath $0.72, however, as it struggled against the Australian dollar <AUD=>, which was buoyed by speculation that interest rates could rise by year-end.

The kiwi fetched $0.7190/96 at 0450 GMT, compared with $0.7129/35 in late local trade on Monday.

"The global recovery story continues, share prices are still pushing higher and the central banks around the world are loathe to act, suggesting the current upward NZ dollar momentum is not over yet," said Anthony Byett, of currency advisors fxMatters, in a note to clients.

Most of the gains came in offshore trade, as U.S. and European equities gained more than 1.3 percent, as a resurgence in takeovers spurred investor confidence in the business outlook.

The local session saw the kiwi range between $0.7158 and $0.7195.

The kiwi struggled on the Aussie cross <NZDAUD=R> as markets priced in an Australian rate rise anytime from November.

It regained some ground against the yen <NZDJPY=R> after Japan's finance minister backtracked on previous comments suggesting he was comfortable with the currency's strength. For more, see [JPY=]

Last week, the kiwi rose to a near 14-month high of $0.7315 <NZD=D4> after a string of positive news including data showing the country emerging from five quarters of economic contraction.

Data released on Tuesday reinforced the theme of gradual recovery, with slight gains in both building consents and total household borrowing in August. [ID:nWEL003866] [ID:nWEL483750]

New Zealand bond prices almost unchanged with the benchmark 10-year bond yield <NZ10YT=RR> up 1 basis point at 5.63 percent.