The New Zealand dollar extended its rally to a three-week high on Monday as the U.S. government’s $700 billion plan to sort out the bad mortgage debt crisis tempted investors back into riskier assets.

The kiwi peaked at $0.6919 in early trade, it’s highest since Sept. 2, but later ebbed as investors turned to focus on how the proposal will work, and the implications for markets, see.

“Improved risk appetite in light of the U.S. bailout has sent the New Zealand dollar higher, but it remains to be seen how long that confidence will be maintained,” Westpac markets economist Michael Gordon said in a note to clients, adding it was too soon to be certain about what the plan means for currencies.

At 0500 GMT the kiwi was at $0.6861/71 from $0.6720/24 in late local trade on Friday. It traded a $0.6919-$0.6824 local range.

The kiwi hit its high on the back of the strongest two-day rally in U.S. equities in 21 years, with investors rediscovering an appetite for risky assets including high-yielding currencies.

The U.S. dollar fell against the yen and the euro as scepticism emerged about how effective the rescue package will be in dealing with the global credit crisis.

On the domestic front, second quarter GDP is out on Friday, with a Reuters poll forecasting a drop of 0.5 percent, confirming the economy was in recession in the first half of 2008.

NZ bonds plummeted in line with U.S. Treasuries, as last week’s flight to safety was reversed on the rally in equities.

The yield on the benchmark 10-year government bond <NZ10YT=RR>, which moves inversely to prices, rose 20 basis points to 5.88 percent.

Source: http://www.afxnews.com

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