Australia dollar hit by disappointing data, adds to rate risk

* Aussie around down across the board

* Investment falls most in four years, outlook soft

* Odds narrow on a further cut in rates

By Cecile Lefort and Naomi Tajitsu

SYDNEY/WELLINGTON, Feb 27 (Reuters) - The Australian dollar skidded on Thursday after surprisingly weak business investment numbers led the market to narrow the odds on another cut in interest rates - albeit not until later in the year.

The Aussie AUD=D4 skidded around half a cent to a low of $0.8916, from $0.8962 in early trade, pulling further away from a peak of $0.9081 touched last week.

It was last at $0.8935 with strong support seen at $0.8910. Dealers cited stops below $0.8900. A break would target $0.8870, the 50 percent retracement of the January-February rally.

The Aussie felt the heat across the board, falling around 0.4 percent against the yen, euro and pound.

It had already come under pressure when heightened tensions in Ukraine sent investors scurrying to the safety of the dollar and U.S. Treasuries.

The latest spill came after Australian business investment fell a surprisingly steep 5.2 percent last quarter, the biggest drop in over four years. Spending plans for 2014/15 also missed forecasts in a blow to the economic outlook. Href="NewsSearch">ID:L3N0LV5CB

The Reserve Bank of Australia (RBA) has been counting on a revival in investment outside of mining to backstop the resource-heavy economy.

Interbank futures 0#YIB: were only a shade firmer as the RBA recently said rates were likely to remain stable for a while. Futures were now implying a one-in-four chance of an easing from a current record low of 2.50 percent by August.

"The market has been ranging between having no cut priced and one cut priced," said Matthew Johnson, a rate strategist at UBS. "But I think in the May-to-August period the market will likely move to price in at least a 50 percent chance of a cut, which should move the Aussie dollar lower and yields lower."

The weak data sent Australian government bond futures to three-week highs with the three-year bond contract YTTc1 up 9 ticks to 97.120. The 10-year contract YTCc1 rose 7.5 ticks to 96.010, leading to a bullish steepening of the curve.

The Australian dollar slipped to a near one-month low against its kiwi neighbour AUDNZD=R at NZ$1.0275, as the weak capex reading highlighted Australia's struggling economy while New Zealand's continues to outperform.

The kiwi NZD=D4 held near a session high of $0.8318, supported by figures showing New Zealand posted a bigger-than-expected trade surplus in January, thanks mainly to Chinese demand for its dairy exports.

Indeed, the country's dairy giant Fonterra FSF.NZ raised its milk price forecast to a record high on Thursday.

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"It's a good result," BNZ currency analyst Raiko Shareef said. "Our economists say it's an additional NZ$5.6 billion for the economy (through farmers' incomes), so that's positive for the kiwi."

That in turn is one reason the market is convinced the Reserve Bank of New Zealand will start hiking interest rates next month, far ahead of most other developed nations.

Technical support was seen at $0.8276, the kiwi's 100-day moving average, and below that at $0.8242, a low hit earlier this month. Many in the market expect a test of $0.8400, a key resistance level, in the near term.

But the kiwi must first clear stubborn resistance at $0.8356, the 61.8 percent retracement of its October-February slide, and $0.8379, where trendline resistance drawn from highs hit in October and February lies.

New Zealand government bonds inched up, nudging yields on most bonds a basis point lower.

(Editing by Eric Meijer)

((Cecile.Lefort@thomsonreuters.com)(+61 2 9373-1234)(Reuters Messaging: cecile.lefort.thomsonreuters@reuters.net))

Keywords: MARKETS AUSTRALIA/FOREX