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FOREX-NZ dollar hits 7-week high; euro awaits inflation data

* Euro zone inflation data eyed for hints on ECB outlook

* Focus also on lingering tensions in Ukraine

* Kiwi hits 7-week high on strong business confidence poll

* China's yuan may have biggest one-day loss

By Shinichi Saoshiro and Masayuki Kitano

TOKYO/SINGAPORE, Feb 28 (Reuters) - The New Zealand dollar hit a seven-week high on Friday as an upbeat business survey underscored expectations for a rate hike next month, while the euro eased ahead of a closely-watched reading on euro zone inflation.

China's yuan looks set for its biggest daily loss on record on Friday, as the central bank stepped up its intervention to weaken the currency ahead of a key government meeting next week. In midday trades, the yuan briefly weakened to 6.1808 per dollar, more than 0.8 percent below Thursday's close.

The yen, meanwhile, pushed higher as risk sentiment faltered, with Chinese equities slipping 0.5 percent and Japan's Nikkei share average shedding 0.9 percent, market players said.

In addition, a trader for a European bank in Tokyo said month-end flows from Japanese banks helped drag the dollar lower versus the yen.

The dollar fell 0.5 percent to about 101.65 yen, while the euro shed 0.5 percent to 139.27 yen.

A big mover on the day was the Chinese yuan, which looked set for its biggest daily loss on record as the central bank stepped up its intervention to weaken the currency ahead of a key government meeting next week which may be used as a platform to unveil more market reforms.

Directed at squeezing out speculative plays betting on continued yuan gains, the central bank has set about actively weakening its currency since mid-last week by using a mix of weak daily fixings and asking its agent banks to buy dollars.

The euro eased 0.1 percent to about $1.3699, but stayed above Thursday's two-week low of $1.3643.

Jitters over tensions in Ukraine have weighed on the euro in recent sessions, as investors flocked to safe haven currencies such as the Swiss franc..

The euro's near-term fortunes are seen hinging on euro zone inflation data due later on Friday. The inflation reading will be closely watched for clues on whether the European Central Bank will cut interest rates at its policy meeting next week.

One-third of economists polled by Reuters have pencilled in a cut in the ECB's refinancing rate from the current 0.25 percent at its March 6 meeting.

The kiwi dollar rose 0.2 percent on the day to $0.8389. Earlier, it touched a peak of $0.8415, its highest level since mid-January.

One possible resistance level lies at $0.8433, a peak hit on Jan. 14. A rise beyond there would take the New Zealand dollar to highs that haven't been seen since late October.

An ANZ Bank survey showing that New Zealand business confidence surged to a near 20-year high in February fuelled the rally in the New Zealand dollar.

The survey suggests that interest rate hikes by New Zealand's central bank are needed soon, Greg Gibbs, head of Asia Pacific markets strategy for RBS in Singapore, said in a research note.

"While these are probably fully priced, the data increase the risk of somewhat faster hikes... Given the yield seeking nature of the current market near term risk is a topside break of the range in NZD over the last six months," he added.

The Reserve Bank of New Zealand is expected to start its long-awaited tightening cycle at its March 13 policy review, lifting its cash rate from a record low 2.5 percent by 25 basis points.