UPDATE 2-NZ's AMP Capital suspends property fund

(Adds comment, updates market reaction)

WELLINGTON Aug 1 (Reuters) - AMP Capital Investors, New Zealand's largest fund manager, said on Friday it had suspended activity in an unlisted property fund after a rush of redemptions, the second fund suspension this week and sending the currency lower.

The AMP Capital NZ Property Fund has about NZ$419 million ($306 million) invested in private and listed property trusts, bringing to almost NZ$3.5 billion the total of retail investments lost or frozen by the market turmoil in the last two years.

An analyst said the state of the finance sector had serious implications for the economy and required a quick response from the central bank.

"The RBNZ must seriously consider the potential flow on impacts of such a loss of confidence, if magnified, on financial stability," said Goldman Sachs JBWere economist Shamubeel Eaqub.

"In our view, the RBNZ needs to neutralise monetary policy and preferably quickly."

AMP Capital New Zealand, a subsidiary of Australian financial services firm AMP Ltd (AMP.AX) said all new investment and withdrawals would be halted. "We've taken these actions as a prudent response to the current extraordinary market conditions that have resulted in higher than usual redemptions in the fund, not matched by fresh investment," managing director Murray Gribben said in a statement.

No other AMP investment funds were affected, Gribben said. AMP has total investments of over NZ$11 billion.

The New Zealand dollar NZD= fell more than a third of a cent to a low NZ$0.7277 NZD=D4, its lowest since September 2007, before recovering slightly. The kiwi has been steadily falling over the past four months on a poor economic outlook and the expectation of lower interest rates.

On July 24, the central bank cut rates for the first time in five years and signalled further cuts to come on an economy widely seen in recession.

AMP said activity in the property fund can be suspended for up to a year, although it would resume activity as soon as market conditions improve.

Over the past two years about 25 non-bank finance or investment companies in New Zealand have collapsed or sought to delay and restructure the repayment of deposits.

On Wednesday fund manager Guardian Trust suspended activity in a fund worth NZ$249 million because of liquidity issues.

Last week Hanover Finance Ltd, the country's fifth-largest non-bank finance company, suspended repayments to about 16,700 investors who had about NZ$550 million in deposits.

Most of New Zealand's finance sector has not been directly exposed to the subprime mortgage crisis, but it has suffered through the increased cost of borrowing and the loss of investor confidence. (NZ$1=$1.37) (Reporting by Adrian Bathgate; Editing by Clarence Fernandez)