* Yen gains more than 1 percent vs dollar
* Aussie dollar, sterling, euro also fall 1 percent vs yen
* New Zealand's central bank cuts rate to record low 3 pct
* NZ dollar gains as cut smaller than some expected
By Kaori Kaneko
TOKYO, March 12 The yen rose more than 1 percent against the dollar on Thursday, adding to its sharp gains the previous session, while the New Zealand dollar climbed after its central bank cut interest rates less than some expected but still to a record low.
The Reserve Bank of New Zealand said it saw the economy hitting a trough in the middle of this year and gradually picking up from there. [ID:nSYD214234]
The New Zealand dollar gained after the central bank limited its interest rate cut to 50 basis points, less than some investors had expected. [NZD/]
The U.S. dollar had weakened broadly on Wednesday as investors decided its recent gains had gone far enough without any new stimulus to prompt fresh buying and after a Chinese trade report that cast doubt on China's ability to finance the U.S. current account deficit.
"There's been a pause in the dollar's rise and in that situation the yen has been bought," said Nobuaki Kubo, vice president of BBH Investment Services.
Data released on Thursday showed Japan's economy shrank 3.2 percent in the final three months of last year, revised from an initial drop of 3.3 percent but still the sharpest contraction since the oil crisis in 1974. [ID:nT7510].
The yen edged up after the data was released, although traders said the market's view on the economy was unchanged.
"The GDP data was a bit better than expected but it didn't have much impact on the forex market," Kubo said.
But the yen gathered steam as the session wore on.
The dollar fell as low as 95.95 yen on trading platform EBS, its weakest in two weeks, and was down 1.0 percent at 96.37 yen JPY= at 0400 GMT. Its rally from a 13-year low in January lost steam as it approached 100 yen last week.
Some traders said short-term speculators saw the dollar had faced strong resistance in the 99.50-100 yen area and were now selling it short-term. Its drop through 97.00 on Thursday had also triggered further sell orders.
"There were no obvious factors for the dollar's fall the previous day, and the currency's move keeps it at the lower end of ranges," said Yuichiro Nakamura, a forex dealer at Shinkin Central Bank.
Sterling, the Australian dollar and the euro also weakened sharply agains the Japanese currency. The euro fell 1 percent to 123.50 yen EURJPY=.
But the European single currency kept its gains on the dollar, holding steady at $1.2843 EUR= after gaining 1.4 percent on Wednesday and touching a two-week high of $1.2865 on trading platform EBS.
The New Zealand dollar rose more than half a cent to $0.5145 NZD= after the central bank's decision, which took the benchmark rate down by half a percentage point to 3.0 percent. [ID:nWEL435757]. It later trimmed gains to $0.5128.
Analysts said with major economic zones' monetary and fiscal policy heading in the same direction, finding lasting trends in the currency market has become difficult as interest rate differentials have narrowed so significantly.
"So lowering interest rates does not necessarily trigger selling of a nation's currency," said Akira Takeuchi, manager at Chuo Mitsui Trust and Banking.
"It's hard to predict what is driving the market, as many players have been squeezing their risk assets to repatriate funds to their own currencies now," he said. (Additional reporting by Rika Otsuka, Charlotte Cooper; Editing by Hugh Lawson)
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