* Pound jumps after December sales surprise
* New Zealand dollar falls 1 percent vs dollar
* Euro burdened by inflation concerns
* U.S. dollar pauses ahead of industrial production
By Patrick Graham
LONDON, Jan 17 Strong British retail sales shook the pound out of a week-long torpor on Friday while the New Zealand dollar was the biggest faller among major currencies, halting a run to 9-month highs.
Sterling surged half a percent after the December figures came in far stronger than forecast, wrongfooting many traders who have turned more bearish on the pound after its good six-month run against the dollar.
"We were contemplating a test of support for the pound at $1.6320. In the end we got this stonking number which provoked a genuine reaction," said Daragh Maher, strategist with HSBC in London.
It has been a listless past week for the big four currencies. U.S. jobs data have cast some doubt on the dominant view at the start of the year that the dollar should strengthen, while the euro is weighed down by worries over inflation.
The single currency inched down 0.1 percent to $1.3602, with focus shifting to U.S. industrial production data, due at 1415 GMT.
Whether the 5.3 percent annual jump in UK retail sales point to a sustainable recovery in Britain and more fuel for the pound is unclear. Strong spending around Christmas may well have been chiefly on credit and unless wages start to grow in real terms, the Bank of England may be justified in sticking with ultra-low interest rates well into next year.
"We will probably have to wait for employment data to give us some clearer sign of the picture changing," Maher said.
Wage and employment numbers are due next Wednesday, along with minutes from the Bank of England's last meeting.
The kiwi's rise has also been one of the themes of recent months, given expectations the Reserve Bank of New Zealand was on the verge of raising interest rates.
Traders say some hedge funds have taken profit on the kiwi's gains against the Australian dollar this week by buying U.S. dollars. Commercial lender the Bank of New Zealand on Friday said it would sell the kiwi above $0.8400 as the currency faces some downside risks in the near term, including a CPI reading next week which may scotch expectations of a first rise in rates this month.
"In our G-10 valuation table it is the New Zealand dollar that now tops the list as the most over-valued currency," Bank of Tokyo-Mitsubishi UFJ analyst Derek Halpenny said.
"Given how well priced an RBNZ rate hike is this year, we would not expect strong buying from current levels if the RBNZ does hike this year."
The Kiwi traded 1.04 percent down on Thursday's U.S. close at $82.66. It lost a similar amount against the Australian dollar before recovering a touch to trade half a percent lower at 1.0601 New Zealand dollars per Aussie.
While some traders cited expectations of a lower inflation number next week as a reason to sell the kiwi, Maher cautioned that the day's profit-taking may be very short term.
"I'm not sure there was any fundamental reason for this profit-taking today," he said. "The pull-back may well have left some value there."