* Dollar index at 6-month lows, euro at 5-month highs
* Japan on holiday but fear of intervention lingers
* NZ dollar slides after shockingly weak GDP report
By Wayne Cole and Charlotte Cooper
SYDNEY/TOKYO, Sept 23 (Reuters) - The U.S. dollar was on the defensive on Thursday as speculation that the Federal Reserve will soon start printing more money drove down Treasury yields and kept the greenback pinned near a five-month low on the euro.
But in holiday-thinned Asian trade, one currency faring worse was the New Zealand dollar as data showed the country's economy grew just 0.2 percent last quarter, far below expectations.
The kiwi
With market players positioning for more quantitative easing expected from the Federal Reserve later this year, the U.S. dollar has been pummelled across the board this week and was at six-month lows against a basket of currencies.
The dollar index <.DXY><=USD> broke support just above 80.00 on Wednesday, but was finding more support at 79.50-70, with chartists expecting consolidation before it heads down.
"Lower U.S. yields are suggesting that the dollar is heading lower overall," said Andrew Robinson, FX market strategist at Saxo Bank in Singapore.
"There might be some minor profit-taking along the way, but there are probably a lot of willing sellers of dollars on rallies in the next few weeks."
Short-term Treasury yields
The dollar index was steady at 79.82. It briefly breached 79.70, the 61.8 percent retracement of its move up from 74 in November last year to its June high above 88.
If the breach does not prove a false break, some chartists see a move down to last December's interim peak at about 78.45.
Against the yen, the dollar edged up 0.1 percent to 84.62
yen
PDF on Japan's yen intervention http://r.reuters.com/fac44p
Japanese markets were closed on Thursday, but there was talk on Wednesday the Bank of Japan was checking with local banks to see how they would be staffed, keeping alive the risk of yen sales.
Tokyo intervened in the currency market for the first time in six years on Sept. 15. It has not been seen selling yen since, but the closer the dollar gets to its 15-year low of 82.87 yen, struck just before the Japanese authorities stepped in, the more cautious the market becomes that intervention will resume.
On the upside, the dollar/yen's 55-day moving average, now at 85.73, has provided resistence in post-intervention price action.
Japan's Prime Minister, Naoto Kan, meets President Barack Obama later on Thursday, where intervention may be discussed.
EURO A WINNER FOR NOW, KIWI A LOSER
The euro has benefited almost by default, climbing to
$1.3441
The rise is partly due to a squeeze in short euro positions, with potential for a further gain, and well-received bond auctions from peripheral euro area countries, David Forrester at Barclays Capital in Singapore said in a client note.
But it has also been helped by the fact that the Fed and the Bank of England are considering expanding their quantitative easing programmes and by Japan's yen intervention, which could lead to a larger supply of short-term funds if left unsterilised.
"Among the G4, the euro is attached to a central bank that has yet to talk about more QE," Forrester wrote.
Traders note, however, that the euro zone has its own share of problems, with strikes and protests around the region in response to fiscal austerity measures. [ID:nLDE68L1T2]
The euro is at the upper limit of its Bollinger bands on the daily charts. The next target is $1.3510, the 50 percent retracement of its fall from $1.5145 last November to its June low of $1.1876.
Support is expected at $1.3334, its August high, and from its 200-day moving average at $1.3210.
It hit its highest in more than a month against the yen on
Wednesday at 113.53 yen
But the kiwi was firmly in reverse after the disappointing GDP data further dimmed the chance of a hike in interest rates for months to come.
"The bottom line is weaker than expected, weaker than the Reserve Bank has pencilled in, pretty much confirming the bank is on hold for the rest of this year at least," concluded Robin Clements, an economist at UBS.
A trader said activity was mainly proprietary accounts with
some macro fund action. It was trading at $0.7327
Interest rate markets are pricing in that cash rates in Australia and New Zealand will stay at 1.5 percentage points differential in favour of the Aussie for another year, although the cross, at NZ$1.3030, faces resistance above NZ$1.32. (Additional reporting by FX analysts Krishna Kumar in Sydney and Rick Lloyd in Singapore; Editing by Ron Popeski)