NZ dollar gains on GDP data, bonds lower

WELLINGTON, Sept 26 (Reuters) - The New Zealand dollar gained as better-than-expected data suggested the economy will only suffer a shallow recession, while the U.S. dollar dipped as talks on a financial sector rescue package stalled.


* NZ dollar gains around half a cent to a high of $0.6880 after data showed the NZ economy was in recession in the first half of the year, but the contraction was not as big as feared.

* U.S. dollar falls against the yen and the euro as wrangling between lawmakers over the U.S. government's proposed $700 billion bailout plan continued.

* NZ second-quarter gross domestic product data showed activity fell by a less-than-expected 0.2 percent against market expectations of 0.5 percent.

* Data raises hopes the recession will be a shallow one with another quarter of weakness likely before a return to growth in fourth quarter.

* GDP data not seen altering the outlook for further Reserve Bank of NZ rate cuts given the more pressing impact of the global financial turmoil. A rate cut of at least 25 basis points seen certain at October rate review, with significant risk of a 50 basis point cut.

* NZ Finance Minister Michael Cullen says economy likely to resume growth again by the end of the year.

* Short-term support for the NZ dollar seen at $0.6820 with resistance at $0.6900.

* NZ data calendar thin next week with August trade, building consents, and latest National Bank of NZ confidence survey.

* New Zealand bonds turn soft, partly on the better-than-expected GDP data, with yields up to three basis points higher.

* NZ two-year swap rate at 6.98/7.01 percent compared with Thursday's 7.0 percent.

* NZ goes onto daylight saving on Sept. 28, with clocks going forward one hour to be 13 hours ahead of GMT.