* Euro holds steady, hovers near 4-month low vs dollar
* Kiwi rallies after RBNZ raises rate, retains hawkish bias
* Euro slips to 1-year low vs New Zealand dollar
By Masayuki Kitano
TOKYO, June 12 (Reuters) - The euro hovered near a four-month low versus the dollar on Thursday, hobbled by a widening yield gap between euro zone bonds and their major peers, while the New Zealand dollar rose after the central bank retained its hawkish bias.
The euro held steady at $1.3535, languishing near a four-month low of $1.3503 set last Thursday when the European Central Bank cut interest rates to record lows and took its deposit rate negative for the first time.
After that initial fall, short-covering had lifted the euro to a two-week high near $1.3678 on Friday. But the euro has faced renewed selling pressure this week, as a rise in U.S. bond yields helped underpin the greenback.
One key to the euro’s outlook is whether it will manage to breach support at levels around $1.3500, said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.
“An important psychological level might be $1.3500. I think there will be some follow-through selling if that level is breached,” Wakabayashi said.
“If there is a clear break of $1.3480, then we will probably start to hear some chatter about $1.3200,” he said.
The euro had touched a low near $1.3477 in early February. A drop below that level would take the euro to its lowest level since last November.
The common currency has also fallen on the crosses, as the ECB’s easing measures have stirred talk that the euro could increasingly be used as a funding currency for carry trades, in which investors sell low-yielding currencies to fund investment in higher-yielding assets.
Against the New Zealand dollar, the euro touched a one-year low of NZ$1.5674 earlier on Thursday, its lowest level since May last year.
The kiwi rallied after New Zealand’s central bank raised interest rates for the third time in four months, surprising some investors who had bet on a slower pace of rate hikes.
The RBNZ raised its cash rate 25 basis points to 3.25 percent and retained its hawkish policy bias, driving the New Zealand dollar up 0.8 percent to $0.8615.
The U.S. dollar traded at 102.05 yen, hovering near a one-week low of 101.86 yen set on Wednesday. (Additional reporting by Naomi Tajitsu in WELLINGTON; Editing by Eric Meijer)