* Reduced easing expectations keep euro on steady footing
* Euro’s gains capped slightly after lukewarm China data
* Kiwi rallies on RBNZ rate hike, jobs data boosts Aussie
By Shinichi Saoshiro
TOKYO, March 13 (Reuters) - The euro hit a fresh 2-1/2-year peak on Thursday amid underlying bullishness towards the single currency stemming from diminished expectations for easing by the European Central Bank.
The New Zealand and Australian dollars also surged, with the kiwi boosted after the Reserve Bank of New Zealand hiked rates and signalled more tightening ahead while stronger-than-expected employment numbers hurled the Aussie higher.
“The euro continues to ride on the momentum generated by ECB’s Draghi. Recent economic indicators from the euro zone have been upbeat as a whole, decreasing expectations for further easing,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust in Tokyo.
The European Central Bank left interest rates unchanged last week and President Mario Draghi told a news conference that economic conditions in the region did not require a shift in monetary policy.
The euro was up 0.2 percent at $1.3935 after touching a new 2-1/2-year high of $1.3949.
The euro’s gains were capped slightly by lukewarm data from China, with 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 also weaker than expected.
The Australian dollar, often used as a liquid proxy for China plays because of its sensitivity to developments in Australia’s largest export market, also pared some of its gains.
“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.
Safe-haven currencies the yen and Swiss franc were also in favour on Thursday, consolidating their overnight gains as worries about the health of the Chinese economy and the crisis in Ukraine took a toll on risk appetite.
The U.S. dollar last stood at 0.8726 Swiss francs after falling as far as 0.8723 francs, a low not seen since October 2011. Against the yen, the greenback traded at 102.62 , having earlier hit a one-week low of 102.55.
Lessening the appeal of the dollar was a drop in U.S. Treasury yields as a result of safety flows. The benchmark yield slid to a one-week low of 2.71 percent, pulling away from Friday’s peak of 2.82 percent.
One stand-out performer was the New Zealand dollar, which rallied to a 10-month peak versus the greenback after the Reserve Bank of New Zealand delivered a widely expected interest rate hike and flagged that a further 100 basis points of tightening was possible this year.
The RBNZ lifted its cash rate to 2.75 percent from a record low 2.5 percent.
The kiwi touched $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,” said Michael Turner, strategist at RBC in Sydney.
The Australian dollar leapt more than half a cent after the strong jobs data squeezed short positions and added to the view of a stable interest rate outlook.
The Aussie jumped as high as $0.9076, from $0.8985 in early trade, before edging back to $0.9047 in the wake of the Chinese data.