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FOREX-Dollar steadies as investors heed hawkish reminder from New Zealand

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RBNZ hikes policy rate 50 bps

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NZ move dims hopes of slowdown in rate hikes globally

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Kiwi jumps briefly, U.S. dollar finds traction

By Tom Westbrook

SYDNEY, Oct 5 (Reuters) - The dollar steadied on Wednesday after a sharp rate rise in New Zealand poured cold water over hopes for a pause or slowdown in the U.S. Federal Reserve's intentions for aggressive hikes.

The dollar had suffered its heaviest setback in more than two years on Tuesday but was back on the front foot after the Reserve Bank of New Zealand (RBNZ) delivered a fifth consecutive 50 basis point (bp) hike.

Even the New Zealand dollar was only boosted briefly. The kiwi leapt as much as 1.3% before falling back to barely above flat at $0.5741. The euro fell 0.2% to $0.9970. Sterling's rally paused as it fell 0.3% to $1.1449.

The RBNZ move and tone contrasted with the Reserve Bank of Australia's surprisingly small 25 bp hike a day earlier, which had seemingly stoked hopes that the U.S. Federal Reserve may also slow hikes and fuelled dollar selling.

"Just as RBA's smaller-than-expected hike yesterday added to trimming of hawkish Fed bets, RBNZ's hawkish signalling could remind markets that fighting inflation is still priority for many central banks," said Maybank analyst Saktiandi Supaat.

"A more synchronous dovish tilt among major central banks on growth fears might be premature."

The dollar index, down about 4% since hitting a record high of 114.78 last week, steadied at 110.30. The yen held at 144.06 per dollar and the Australian dollar fell 0.2% to $0.6488.

Demand for the safe haven dollar had fallen in recent days as the mood in global markets improved on speculation Britain's new finance minister Kwasi Kwarteng, having rowed back on a proposed tax break for high earners, could make further adjustments to a mini-budget that had sent bond and currency markets into a tailspin last week.

Having recovered nearly 11% from week-ago record lows, sterling's rally seems to be running out of steam, dealers said.

Analysts have been cautious about how much has really changed about Britain's fiscal outlook and how broad Australia's rates signal really was, leaving the dollar's dip open to reversal.

U.S. Federal Reserve Governor Philip Jefferson reiterated overnight that inflation was policymakers top target and that growth would suffer in efforts to bring it down.

U.S. labour data due on Friday will be the next major indicator of the likely trajectory of U.S. rates.

(Reporting by Tom Westbrook. Editing by Lincoln Feast & Simon Cameron-Moore)