Australia & NZ dollars hang onto hefty gains after RBA's policy shift

* Huge resistance at $0.8925 for AUD after big rally

* With market still short Aussie, bounce could top 90 cents

* Upbeat NZ labour data cements expectation of March rate hike

By Gyles Beckford and Cecile Lefort

SYDNEY/WELLINGTON, Feb 5 (Reuters) - The Australian and New Zealand dollars paused on Wednesday after a powerful short-covering rally challenged strong chart barriers, with the kiwi getting an extra boost from strong jobs data.

The Aussie AUD=D4 eased to $0.8900, from $0.8933 in early trade, digesting a whopping 2 percent gain overnight after the Reserve Bank of Australia (RBA) closed the door on further rate cuts, citing higher-than-expected inflation.

The central bank's change of tack sent the Aussie to a peak of $0.8943 as bearish speculators were surprised and forced to buy back the dollar. Yet, the Aussie was unable to sustain a break above strong resistance at $0.8925.

"Positioning was getting stretched too far in one direction and a two-cent move flushed out a lot of weak shorts," said David Scutt, a trader at Arab Bank Australia.

"It's now in a period of consolidation awaiting news from U.S. payroll figures and domestically retail data."

Scutt said strong results in Australia could see the Aussie return above 90 cents as market sentiment remains very bearish.

Near-term resistance was found at this year's peak at $0.9087 set on Jan 13.

The Aussie held lofty gains against the yen, euro and pound. It was trading at 90.35 yen AUDJPY=R , having surged 2.7 percent in its biggest one-day move in 10 months. The euro dropped 2 percent to a low of A$1.5101 EURAUD=R to last fetch A$1.5170.

Against its New Zealand peer, the Aussie rose as high as NZ$1.0948 AUDNZD=R but has since erased most of the gains to be back near NZ$1.0853.

With the Reserve Bank of New Zealand (RBNZ) considered all but sure to hike interest rates in March, investors were reluctant to bet against the kiwi dollar.

Cementing the central bank's hawkish stance, data on Wednesday showed solid jobs growth and an increase in the number of people actively looking for work. News Search ID:nL3N0L90V1

The upbeat data sent the kiwi to a peak of $0.8259 NZD=D4 , way off a five-month low of $0.8052 hit Monday. It was last at $0.8203.

"There is a risk, if data remain on the strong side of RBNZ expectations, that the RBNZ follows up with a second hike in April rather than waiting until June," said ASB economist Daniel Smith.

Earlier, global dairy prices rose 0.5 percent, but volumes eased, in the latest auction. The strength of the dairy market is often an influence on the kiwi given it is the country's biggest export earner. News Search ID:nL5N0L93MG

Near-term support for the kiwi is seen around $0.8180 with solid resistance at $0.8240-50.

The state of risk sentiment is set to dictate the currency's course for the balance of the week, with trade to be thinned on Thursday by a national holiday in New Zealand.

New Zealand government bonds 0#NZTSY= had an offered tone, with yields up to 4 basis points higher along the curve.

Australian government bond futures extended a sharp pull back from multi-month highs.

The three-year bond contract YTTc1 fell 3 ticks to 97.060, while the 10-year contract YTCc1 was off 4.5 ticks to 96.025, leading to a bearish steepening of the yield curve.

The premium offered by Australia 10-year yields AU10YT=RR over U.S. Treasuries rose to the highest this year at 145 basis points, from a low of 123 basis points late in December.

(Editing by Shri Navaratnam)

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

Keywords: MARKETS AUSTRALIA/FOREX