Australian dlr pinned down after weak jobs data, bonds rally

* Aussie on track with 2 pct weekly drop vs USD

* Aussie TWI at lowest since July 2010

* AUD near 8-yr lows vs kiwi

By Cecile Lefort and Naomi Tajitsu

SYDNEY/WELLINGTON, Jan 17 (Reuters) - The Australian dollar remained in the doldrums on Friday, hovering near 3-1/2-year lows against the U.S. dollar, with technicals pointing to further downside.

The Aussie AUD=D4 stood at $0.8824, having slumped more than 1 percent on Thursday to a low of $0.8777, its weakest level since August 2010. It has shed 2 percent this week largely because of disappointing jobs figures. ECONAU

The data revived speculation about another cut in interest rates by the Reserve Bank of Australia (RBA), though the further the Aussie falls, the less need there will be for an easing.

Interbank futures 0#YIB: show a two-in-three chance of a easing by mid-year, compared to just one-in-four before Thursday's jobs data.

Swap rates CSSY swung back to pricing in an easing on a 12-month horizon, albeit only of 8 basis points, from 6 basis points of rate hikes.

Yields on two-year government debt AU3YT=RR fell as far as 2.52 percent, the lowest in five months.

Technicals for the Aussie dollar suggest further falls could lie ahead. Key support was found around $0.8770/75, the 76.4 percent of the 2010-2011 climb and also Thursday's trough. Charts show a weekly close below $0.8864 would be a negative signal.

The Aussie was nursing hefty losses across the board. It went as far as 68.0 =AUD on a trade-weighted basis in New York, its lowest level in 3-1/2-years.

Against its kiwi cousin, the Aussie skidded to NZ$1.0534

AUDNZD=R , the lowest level in more than eight years to last trade at NZ$1.0585. It was 2 percent lower since Monday, largely due a diverging interest rate outlook.

Many in the market expect that New Zealand interest rates will begin to rise soon, which would make the small island nation the first among developed countries to tighten monetary policy in the current cycle.

The kiwi has retreated from a near three-month high of $0.8433 hit earlier this week, as resistance around $0.8400 has been building following its failure to hold above that level.

But the kiwi hit a nine-month high of 79.32 versus a currency basket =NZD and inched towards a post-float high of 79.39 hit in April.

While investors largely remain bullish on the kiwi, some analysts said the scope for more gains may be limited, given that much of the optimism about New Zealand's economy is priced into the currency and bond markets.

Bank of New Zealand on Friday said it would sell the kiwi above $0.8400 as the currency faces some downside risks in the near term. They include a CPI reading next week which may scotch expectations that the Reserve Bank of New Zealand may start raising rates this month.

"In the near-term we believe pushes in the NZD/USD above $0.8400 should be seen as opportunities for establishing tactical short NZD/USD trading positions," its analysts said in a note.

"The NZ 'good news' story is now well understood and priced by the market. Significant upside surprises will likely be increasingly difficult to muster near-term."

New Zealand government bonds 0#NZTSY= rose, pushing yields as much as 4 basis points lower across the curve.

Australian government bond futures hit multi-month peaks, with the three-year bond contract YTTc1 up 5 ticks at 97.110, the highest since October. The 10-year contract added 7 ticks to 95.945, leading to a bullish flattening of the yield curve.

(Editing by Shri Navaratnam)

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

Keywords: MARKETS AUSTRALIA/FOREX