* Bond tenders underline capital flowing into euro
* Asian markets recover after China copper shock
* Kiwi rallies on rate hike, jobs data boosts Aussie
By Patrick Graham
LONDON, March 13 The euro consolidated gains on Thursday, holding around 2-1/2 year highs hit in early European trade, with a push above $1.40 still in the balance ahead of a batch of U.S. data.
The single currency, pitched by many banks at the start of 2014 as one of this year's likely losers, has drawn strength from a trade and capital account that is roughly 30 billion euros to the good monthly and the European Central Bank's unwillingness, so far, to take more extreme action to counter low inflation.
The euro has gained another 1.5 percent since the ECB took no action last week to ease policy, and gave no indication it was about to. Dealers said if it pushes past the round figure of $1.40 it could move swiftly higher.
"We had a good move overnight and it looks like we've just taken a breather here. I don't see any reason why it shouldn't go further," said a dealer with one European bank in London.
"On the day people may be waiting for the U.S. numbers before making a call."
It is not easy to see how the U.S. figures can significantly shift the picture of an economy whose recovery has stuttered somewhat since the end of last year. Retail sales, due at 1230 GMT, are seen rising 0.2 percent but are notoriously volatile. Business inventory numbers are also due at 1400 GMT.
One factor in the euro's rise this year has been a general inflow of capital to the euro zone, reflecting a return of interest among investors in the debt issued by the currency bloc's weaker members.
The biggest European banks have also been pulling more capital back to base ahead of an opening review of their books by the ECB as it takes over regulation of the sector's major players.
Italy sold 7.75 billion euros in bonds on Thursday, paying record low yields on three- and 15-year debt. Ireland, steadily returning to the market after completing a programme of cutbacks required by its international bailout lenders, sold 1 billion euros worth of 10-year bonds in its first regular tender in almost four years.
"The policy messages and data support the euro and we think that will allow it to continue to push higher from here," Ian Stannard, a strategist at Morgan Stanley in London, said.
"The flow picture looks quite positive and the euro zone's current account surplus is not being recycled (back out into investment outside the euro zone) because of the weakness of European banks' balance sheets."
The euro was up almost 0.4 percent on the day at 1.3953. The Swiss franc also extended gains against the dollar to as low as 0.86980 francs - its strongest since late 2011.
The New Zealand and Australian dollars both surged overnight, the kiwi boosted by a rise in central bank rates and signs of more to come, while stronger-than-expected employment numbers helped the Aussie.
Both the Aussie and the kiwi had suffered a day earlier from a dramatic fall in prices for copper and other commodities due to growing concerns over the Chinese economy, a major driver of demand for Australia's huge mining sector.
That move calmed overnight with Asian stock markets and copper prices both stabilising, helping a recovery in currencies closely linked to the prices of the raw materials of which China has been the major global buyer in recent years.
Still, the newest data from China was lukewarm at best. Industrial output rising 8.6 percent in the first two months of 2014 from a year earlier, missing market expectations, and growth in retail sales was also weaker than expected.
"The numbers out of China were not impressive by all means, but it was not bad enough for players to create big fresh 'risk off' positions - thus currency reaction was limited," said a trader at a large Japanese bank in Tokyo.
"Caution is still needed, however, as markets opening later in the session may show a greater negative reaction to the China data," he said.
The Reserve Bank of New Zealand (RBNZ) delivered a widely expected interest rate hike and flagged that a further 100 basis points of tightening was possible this year.
That pushed the kiwi to $0.8567, its highest since May 2013. It also brushed a fresh six-year high of 87.98 against the yen.
"Today's communication strongly suggests the RBNZ will be on the front foot for the next few meetings," Michael Turner, strategist at RBC in Sydney, said.