Australian dollar gains as economy shows solid momentum in Q4

* Economy grows 0.8 pct in Q4 to mark 22-yrs without a recession

* Markets see rates on hold, tiny chance of further easing

By Gyles Beckford and Cecile Lefort

SYDNEY/WELLINGTON, March 5 (Reuters) - The Australian dollar edged up on Wednesday after data showed the resource-rich economy grew at a solid clip in the last quarter, supporting views of a steady interest rate outlook.

The Aussie AUD=D4 rose as far as $0.8998, from $0.8943 in early trade and a one-month low of $0.8891 touched on Monday. It had been aided overnight after Russian President Vladimir Putin played down the prospect of a war in Ukraine.

It later pared gains to $0.8950, partly on option related selling. A sustained break above 90 cents would target $0.9040-50, then the February peak of $0.9081.

The currency stepped up after data showed the economy grew by 0.8 percent last quarter and 2.8 percent for the year, topping expectations and marking a remarkable 22 years without a recession. News Search ID:nL3N0M14U8

Surging resource exports and a revival in consumption offset weakness in business spending, a sign the economy was weathering a slowdown in a once-in-a-century mining investment boom.

"Risk appetite is pretty solid and the data in Australia is also solid. The risk is more to the upside," said Greg Gibbs, a strategist at Royal Bank of Scotland in Singapore. He said a break above 90 cents could send the Aussie towards $0.9200.

"It would be enough to squeeze out speculators which have been sitting short around the 90 level."

Risk sentiment was also buoyed after China, Australia's top export market, reaffirmed its growth target of 7.5 percent, lessening market concerns of a sharper economic slowdown.

News Search ID:nL3N0M2001

Interbank futures 0#YIB: hardly moved as the market had already widened the odds of a further easing from a record low of 2.5 percent given more timely data showed past cuts are feeding through to housing and consumption.

They implied around 1 in 10 chance of an easing by October.

Australian government bond futures fell with the three-year bond contract YTTc1 down 6 ticks at 97.080. The 10-year contract YTCc1 lost 5 ticks to 96.005.

The Aussie held overnight gains versus the yen at 91.39

AUDJPY=R , while the kiwi climbed to 85.66 yen NZDJPY=R , within sight of a five week-high touched last week.

The New Zealand dollar NZD=D4 held firm at $0.8390 as concerns about Ukraine subsided, while the likelihood of higher rates as soon as next week underpinned the currency.

The case for rate rises has been backed this week by data showing strong demand and high prices for New Zealand's commodities, notably dairy.

"These commodity income effects will be one factor that will be encouraging the RBNZ (Reserve Bank of New Zealand) to get on with the job of normalising rates sooner rather than later," said BNZ currency strategist Raiko Shareef.

The currency brushed off a 4 percent fall in dairy prices in the latest auction by Fonterra, the largest dairy exporter in the world. News Search ID:nL1N0M11FQ

The kiwi is seen supported at $0.8340, but any move higher through $0.8400 faces more significant resistance at the year-to-date high of $0.8433.

The Aussie gained 0.3 percent against the kiwi to NZ$1.0688

AUDNZD=R from a low of NZ$1.0614 earlier in the week.

Official data showed a 1.0 percent drop in real building activity in New Zealand as a fall in non-residential building more than offset a rise in home construction. News Search ID:nW9N0J6023

New Zealand government bonds traded with a slight offered tone, sending yields as much as 2 ticks higher.

(Editing by Shri Navaratnam)

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

Keywords: MARKETS AUSTRALIA/FOREX