By Mantik Kusjanto and Cecile Lefort
SYDNEY/WELLINGTON, Dec 31 (Reuters) - The Australian and New Zealand dollars rose in a shortened session on Monday ahead of the New Year's Day holiday, putting them on track to end the year higher against their U.S. counterpart.
The Aussie gained 0.3 percent on the day to $1.0401, from $1.0375 in late trade in New York on Friday. It recovered from a one-month low of $1.0345 last week and looked set to finish 1.8 percent higher this year.
Dealers said the Aussie benefited from investors squaring up positions ahead of the end of the year, while a strong private reading of China's manufacturing activity comforted markets that the world's second-largest economy was recovering.
'I expect the Aussie to remain elevated for a significant part of 2013,' said David Scutt, a trader at Arab Bank Australia, citing China's strong data as one of the reasons.
China is Australia's top export market.
Also underpinning the Aussie was a bounce in iron ore prices which leapt to $139.40, the highest in eight months.
Prices are now up 61 percent from the lows hit in September, a boon to national income as the steel-making mineral is Australia's single largest export earner.
Scutt said the only way the Aussie would lose its shine would be from a collapse in China's commerce or from a shock in sovereign bond markets.
'Risk is not appropriately priced when it comes to sovereign debt and that is a risk in the future,' he said.
For now, Aussie dollar support was found at $1.0345, a recent double bottom and a break below would target $1.0290, the 200-day moving average.
Resistance was seen at the Dec 28 high of $1.0395.
The New Zealand dollar rose 0.5 percent on the day to $0.8240, from $0.8200 in New York on Friday.
It looked on track to post a 6 percent gain this year as investors bet on stronger economic growth due to rebuilding activities following the 2011 earthquake in Christchurch.
Recovering prices of milk, the country's largest export, have also underpinned the kiwi currency. It has risen around 6.5 percent versus a currency basket this year, its best performance since 2009.
Near-term range was expected between the Dec 27 low of $0.8163 and the Dec 26 high of $0.8238.
Against the yen, the Antipodeans cantered higher in expectation that Prime Minister Shinzo Abe will force the Bank of Japan into taking far more aggressive policy stimulus that in the past to jumpstart an ailing economy.
The Aussie rose half a yen in the session to 89.27 yen, approaching a 20-month peak of 89.83 touched Friday.
Charts suggest more upside with 5-, 10- and 20-day moving averages pointing north. A break above 90.04 would take it to levels not seen in four years. The Aussie rose 13.5 percent this year, the largest increase since 2009.
The kiwi gained even more, last fetching 70.76 yen , from 70.30 early and within sight of a four-year peak of 71.40 yen touched last week. It has added more than 18 percent since January.
NZ government bonds were mixed, with yields up to two basis points lower on the longer end of the curve.
Australian government bonds rose, with the three-year contract up 0.04 points to 97.330, having briefly climbed a three-week high of 97.370. The 10-year contract added 0.06 points to 96.760.
(Australia and New Zealand bureaux; Editing by Kim Coghill) Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX
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