FOREX-Dollar off 1-mth low, kiwi cedes post-rate hike gain

* Dollar rises after two days of falls

* Kiwi up as much as 0.8% at one point after 50 bps rate hike

* Euro slips from one-month high vs dollar

By Sujata Rao

LONDON, May 25 (Reuters) - The U.S. dollar snapped a two-day losing streak on Wednesday as Treasury yields paused recent falls, its gain taking the edge off the euro as well as the kiwi dollar which had been lifted earlier by a hawkish central bank message.

The Reserve Bank of New Zealand became the latest central bank to raise interest rates by half a point. While that move was expected, it also provided hawkish guidance on its policy path, noting a larger and earlier hike reduced the risk of inflation becoming persistent.

That had helped the kiwi dollar rise as much as 0.8% at one point to a three-week peak of $0.6514. But as the U.S. dollar gained momentum, it ceded most of those gains to trade 0.2% higher at $0.648.

"The RBNZ move shows central banks are not in a mood to slow down. Conditions are pretty tight in a lot of G10 economies and it's a hint that in the short term policy tightening will remain aggressive," said Colin Asher, senior economist at Mizuho in London.

Asher noted, however, signs of U.S. economic slowdown -- evident most recently in housing and business confidence data released on Tuesday -- could force markets to dial down rate hike and inflation expectations.

U.S. 10-year Treasury yields, which hit 3-1/2-year highs earlier in May, have since fallen some 40 basis points . They slipped another 2 bps on Wednesday but two-year yields were steady on the day.

The dollar has fallen around 3% after hitting two-decade highs earlier this month but bounced 0.4% off one-month lows reached earlier this week.

"My feeling is there is a reasonable chance U.S. rates have peaked and the dollar has peaked along with it. I don't think it will drop sharply from here but the pricing of tighter policy is due a pause," Asher added.

Earlier this week, the dollar was also dented by European Central Bank chief Christine Lagarde, who flagged an end to negative interest rates in the coming months.

Lagarde's comments implied an increase of at least 50 basis points to the deposit rate and fuelled speculation of bigger hikes this summer.

But while that lifted the euro to one-month highs of $1.0748 on Tuesday, it slipped 0.6% on Wednesday, to $1.067.

ECB board member Fabio Panetta took some steam out of the single currency when he warned of a "normalisation tantrum" caused by taking interest rates to "neutral" settings.

The euro also pulled back 0.3% against the Swiss franc, which has firmed in recent days after central bank officials said they would not hesitate to tighten policy if inflation stayed above target ranges.

Later in the day, traders may glean clues about the pace of tightening by the Federal Reserve, when minutes of the last policy meeting emerge.

Already, in an essay published on Tuesday Atlanta Fed President Raphael Bostic warned that headlong rate hikes could create "significant economic dislocation," urging his colleagues to "proceed carefully".

"The Fed, of course, remains focused on inflation, but if inflation reads were (to) start to moderate, then Bostic has opened up the possibility of a Fed pause," Tapas Strickland, a markets economist at National Australia Bank, told clients.

(Reporting by Sujata Rao in London and Kevin Buckland in Tokyo; Editing by Jacqueline Wong)

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