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FOREX-Sterling hits six-week low, kiwi sours on dairy worries

* New Zealand dollar slips as Fonterra cuts payout forecast

* Sterling down again vs dollar, lowest since mid-June

* Dollar index holds near six-month peak

* Fed, U.S. GDP, payrolls key tests for markets this week (Updates with UK data, more quotes)

By Patrick Graham

LONDON, July 29 (Reuters) - Sterling fell to a six-week low against the dollar on Tuesday while the New Zealand dollar dropped almost half a percent as thin summer currency markets marked time before a slew of U.S. data due later in the week.

Other major currency pairs were stuck in tight ranges, with the dollar holding close to six-month peaks against a basket of currencies ahead of data and policy releases starting with GDP and a Federal Reserve statement on Wednesday.

The yen weakened briefly past 102 yen per dollar, with some traders pointing to a warning from Russia that plans to impose sanctions would harm relations between Moscow and Tokyo.

The kiwi was down 0.45 percent at $0.8508, its weakest since June 10, after dairy giant Fonterra slashed its forecast payout to farmers in the new season by 14 percent.

"This is all about the dairy market and a bit of carry over from last week," said one London-based dealer. "We saw some weakness yesterday as well but it recovered pretty quickly."

New Zealand is the only developed world economy where interest rates have already risen, supporting solid gains for its dollar this year. Rates are expected to remain on hold until the end of 2014, however, as the central bank assesses the impact on growth and inflation.


Stronger-than-expected UK mortgage data - which beat back recent signs of housing sector weakness - provided only a brief boost for the pound. At $1.6950, its lowest since June 18, it is more than 2 cents off a near six-year high hit earlier in July.

While most analysts remain upbeat on Britain's economic prospects the feeling is growing that the pound's year-long rise, certainly against the dollar, may have come as far as it can.

"Despite recent data continuing to indicate the UK economy is still a prosperous force to be reckoned with, the recent flurry of articles on housing bubbles seems to have done enough to dampen expectations of a rate rise this side of the new year," South African bank Investec said in a note.

Sterling's fall to $1.6950 represented a break past support at the 55-day moving average of $1.6956 and the 100-month moving average of $1.6957.

The past fortnight has finally given some encouragement to those hoping for a sustained run higher for the dollar that might revive trading volumes and volatility. The latter, a key driver of profits for bank dealing rooms, have been stuck at long-term lows for months.

The Fed's policy statement on Wednesday, along with second quarter gross domestic product numbers and non-farm payrolls on Friday, offer the best hope of new direction on that move.

The dollar index, which measures the greenback's value against a basket of major currencies, held steady at 81.030 . It hit 81.084 late last week, its highest level since early February. The euro was steady at $1.3437, pinned near an eight-month trough of $1.3421 set on Friday.

"You're seeing the euro capped at around $1.3450 ahead of tomorrow's events," said Stephen Gallo, a strategist with BMO in London. "There is some hope that the result of this week's outcomes in the U.S. will perpetuate the rally in the dollar." (Editing by Nigel Stephenson)