Australian dollar hits 3.5-year low on comments by RBA board member

(Adds Ridout comments, updates prices)

* Aussie falls to 3-1/2 year low as investors flee risk assets

* NZD fares better as bears see possible rate hike next week

* Bonds track rally in U.S. Treasuries

By Gyles Beckford and Wayne Cole

SYDNEY/WELLINGTON, Jan 24 (Reuters) - The Australian dollar fell to a fresh 3-1/2-year low on its U.S. counterpart on Friday after Reserve Bank of Australia board member Heather Ridout was reported as saying the currency had not fallen enough.

Ridout was also reported as saying the Aussie dollar at 80 U.S. cents would be a "fair deal" for the economy. Ridout is a non-executive member of the RBA board and does not speak for the central bank on foreign exchange or monetary policy.

Still, traders were looking for an excuse to sell the already beaten-down currency. It fell as low as $0.8689

AUD=D4 , and traded around $0.8750 for most of the session.

Dealers noted the Aussie was approaching a hugely important support level on the charts at $0.8670, which marks the 38.2 percent retracement of its all-time low touched in 2001 to its post-float peak in 2012.

A finish under that bulwark would be technically very bearish for the currency.

For months, the central bank has favoured a weaker currency to help ease competitive pressures on trade-sensitive sectors of the economy, though its fall is also generating domestic inflation pressures that could complicate the policy outlook.

The Aussie was already under pressure on Friday from a bout of global risk aversion, which hit emerging market currencies from Argentina to South Africa to Russia.

Speculators often sell the commodity-leveraged Aussie as a proxy for emerging market currencies where liquidity is lacking.

Investors rushed for the safety of the Swiss franc and yen, while dumping the Australian dollar. The Aussie slipped to 89.75 yen AUDJPY=R , its lowest since September, while the euro reached a four-year peak at A$1.5751 EURAUD=R .

The New Zealand dollar was spared the worst by speculation the Reserve Bank of New Zealand (RBNZ) could hike interest rates next week.

The kiwi was off around half a U.S. cent at $0.8250

NZD=D4 , but was steady for the week.

"We expect a (RBNZ) hike in March, but there is some risk of a move on 30 January, where the market is pricing in nearly a 50 percent probability of a 25 basis point rate rise," said Kieran Davies, economist at Barclays.

"Longer term, we see the RBNZ returning the cash rate to a more neutral level of 4.5 percent by end-2015."

Near-term support for the kiwi was seen at $0.8210, with resistance at the week's high of $0.8346.

Tracking U.S. Treasuries, both New Zealand and Australian government bonds rallied hard. That pushed New Zealand government bond yields 0#NZTSY= as much as 6.5 basis points lower.

Australia's three-year bond futures YTTc1 surged 14 ticks to 97.140. The 10-year contract rose 12.5 ticks to a 2-1/2 month peak of 96.010.

(Editing by Eric Meijer and Richard Borsuk)

((ian.chua@thomsonreuters.com)(+61 2 9373 1871)(RM: ian.chua.thomsonreuters.com@reuters.net))

Keywords: MARKETS AUSTRALIA/FOREX