* Aussie off lows after China data was not as bad as feared

* Kiwi sags on soft inflation reading at home, dairy prices

* Aussie hits two-month highs vs NZD

By Gyles Beckford and Ian Chua

SYDNEY/WELLINGTON, April 16 (Reuters) - The Australian dollar perked up slightly on Wednesday after data from China was not as dire as feared, but soft inflation figures at home kept the New Zealand dollar under pressure.

The latest reading on China showed the economy grew at an annual pace of 7.4 percent in the first quarter, just ahead of forecasts for 7.3 percent.

The data forced some investors to trim bearish positions in the Aussie, pushing it to a session high of $0.9370 AUD=D4 from around $0.9350. It has since eased back to $0.9354.

"The Chinese GDP numbers were marginally better than expected, but I think the initial Aussie reaction was overdone and it has moderated since then," said Annette Beacher, head of Asia-Pacific research at TDSecurities.

Since peaking at a five-month high of $0.9461 nearly a week ago, the Aussie has been struggling to extend gains.

Yet, investors have also been reluctant to sell the currency aggressively as the risk of an interest rate hike later in the year has risen following a recent run of upbeat data.

The Aussie climbed against the yen AUDJPY=R , which was weighed by a rally in the Nikkei .N225 and it outperformed the kiwi to reach a two-month high of NZ$1.0902 AUDNZD=R .

KIWI DOWN

The New Zealand dollar was down against many major currencies after benign inflation numbers and further softness in dairy prices dented demand for the currency.

It was 0.6 percent lower on the day at $0.8591 NZD=D4 and

down around 0.7 percent on a trade weighted basis =NZD .

New Zealand's annual rate of inflation slowed a shade to 1.5 percent from 1.6 percent, confounding expectations for a pick up to 1.7 percent.

The outcome cooled expectations of aggressive central bank tightening, although a measure of domestic inflation showed an undercurrent of stubborn cost pressures. ID:nL3N0N701T

"Despite the lack of a smoking gun on the immediate inflation front, the strengthening demand backdrop looks set to push annual inflation to around 2 percent by the end of the year," said ANZ senior economist Mark Smith.

"The RBNZ will remain on track to raise the official cash rate in April and June."

Indeed, all 17 economists surveyed by Reuters expect a 25 basis point rise to 3 percent at the April 24 review, with the benchmark rate seen at 3.75 percent by the end of the year.

NZ/POLL

The market's rate outlook was largely unchanged, with a 97 percent chance of a hike next week priced in. It has 111 basis points of tightening factored in over the next 12 months, marginally lower than before the data.

Kiwi sentiment was not helped by a fifth consecutive fall in dairy prices in Fonterra's fortnightly auctions. ID:nL6N0N750M

Near-term support for the kiwi is seen at $0.8562 and below that $0.8531, with offers seen at $0.8620.

New Zealand government bonds 0#NZTSY= were firmer, with yields 3 basis points lower along the curve.

Australian government bond futures were also higher with the three-year bond contract YTTc1 up 3 ticks at 97.030. The 10-year contract YTCc1 climbed 3.5 ticks to 96.040, having earlier reached a fresh one-month high of 96.065.

(Editing by Eric Meijer)

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

Keywords: MARKETS AUSTRALIA/FOREX