Wellington, Sept 23 NZPA - The New Zealand dollar fell more than half a US cent on news that the economy expanded less than expected in the second quarter.

New Zealand's gross domestic product rose 0.2 percent in the second quarter, less than the 0.8 percent the market was expecting and the 0.9 percent the Reserve Bank of New Zealand was expecting.

The NZ dollar fell to US73.15c by late morning from US73.70c just before the number was released.

"It was a significant margin below market expectations. Importantly it is below what the Reserve Bank factored," said Mike Jones, a currency strategist at BNZ.

"It very much supports our view that the Reserve Bank will keep interest rates on hold until at least the end of this year," he said.

Initial comments from economists suggested weakness in manufacturing and agricultural production was the main cause.

"It looks like a genuinely weak number," Mr Jones said.

The NZ dollar was earlier boosted by reported comments from NZ Debt Management Office treasurer Philip Combes, at a conference in London, that the New Zealand currency had room to appreciate in the medium term provided Asian economic growth continued and commodity prices stayed strong.

The NZ dollar peaked around US74.15c shortly before 2am, but fell away quickly and by 8am had eased to US73.76c. That was still up from the US73.59c at 5pm yesterday.

The US dollar also slid to a five-month trough against the euro and saw its lowest level against the yen since Japan's intervention last week.

The Fed said yesterday it was prepared to start pumping billions of new dollars into the US economy, likely via purchases of Treasury bonds, to boost growth if necessary. That would further depress US debt yields, which are already at record lows in some maturities, and weaken demand for US assets.

The NZ dollar was at A76.62c by late morning from A76.94c at 5pm yesterday.

It slipped to 0.5460 euro from 0.5537 at 5pm yesterday and eased to 61.82 yen from 62.45. The trade weighted index was down to 66.50 from 67.08 at 5pm yesterday.

NZPA WGT Reuters pjg kn