* NZ consumers least optimistic since June 2009
* Consumers not confident about own purchasing power
* Business confidence down for first time in three months
By Mantik Kusjanto
WELLINGTON, Dec 16 (Reuters) - New Zealand consumer confidence fell to its lowest level in 18 months in the fourth quarter while business confidence posted its first drop in three months in December, reinforcing expectations its economic recovery will remain sluggish and uneven well into 2011.
Confidence remained positive, despite the slight softening, pointing to an economy struggling to pick up pace and giving the Reserve Bank of New Zealand (RBNZ) scope to keep interest rates steady into the middle of next year.
"Today's results support our expectations that the RBNZ can afford to wait till June before it raises the OCR (official cash rate)," said ASB bank economist Christina Leung.
The New Zealand dollar edged lower to $0.7393, from $0.7405 before the business confidence data. The currency was already being dragged lower by falls in the euro against the U.S. dollar on worries about euro zone debt and as traders unwound long euro positions ahead of the year end.
ANZ-National bank chief economist Cameron Bagrie said businesses were holding back from taking more decisive action partly because of their focus on paying back debt.
"Grumpy growth has been the theme. Nonetheless, the seeds of a robust recovery are being sown. It takes time for germination to take hold," Bagrie said.
"2010 was not about getting growth per se. It was about setting the scene for growth that will ultimately prove to be enduring."
The National Bank of NZ's monthly business outlook showed a net 34.5 percent of companies expected their own business to improve in the next 12 months, compared with a 35.3 percent optimism level in the November survey.
The survey's headline measure of sentiment showed a net 29.5 percent of respondents expected the economy to improve over the next 12 months, compared with a net 33.2 percent a month earlier.
Reflecting the patchy economy, the Westpac-McDermott Miller survey showed consumer confidence falling to 108.3 in the December quarter from 114.1 in the previous quarter. A reading above 100 indicates more optimists than pessimists. [ID:nL3E6NF066]
Westpac economists said the decline in sentiment was across the board and seemed to stem from weak income growth and a more pessimistic view of the short-term economic outlook.
"Consumers have clearly become more cautious over the past few months, and indeed over the past year, despite falling unemployment, lower income tax rates, strong commodity prices, and lower fixed term interest rates," Westpac senior economist Donna Purdue said in a statement.
Last week the RBNZ held its cash rate at 3 percent because of the weak economic recovery, and said it was prudent to keep rates low until the economy gains some strength.
A Reuters poll after the decision showed a majority view that the next move would be a 25 basis point rise in June next year.
Recent data has shown weak retail sales as consumers stay cautious and reduce debt in the face of slow wage growth and a soft property market.
However, there were some signs that the foundations are being put in place for a solid rebound later in 2011.
The results of the latest dairy auction by the country's top exporter, Fonterra, showed a 2.4 percent rise in dairy prices, indicating sustained high prices for the country's main commodity. [ID:nL3E6NF05G]
And the latest manufacturing survey showed the sector posting its first growth in four months in November. [ID:nL3E6NF1US]
"Today's data suggests the economy improved modestly into the latter parts of the year. We expect that improvement to continue into 2011, albeit at a modest pace," said Goldman Sachs economist Philip Borkin. (Editing by Kim Coghill)