FOREX-Dollar rallies broadly, hits 1-yr high vs euro

* Dollar rallies after New Zealand dollar hits 2-year low

* Risk aversion pushes dlr index to 1-year high, euro sinks

* RBNZ surprises market with hefty 50 basis point rate cut

(Changes dateline, byline, adds comment, updates prices)

By Naomi Tajitsu

LONDON, Sept 11 (Reuters) - The dollar rallied on Thursday, clocking a one-year high against the euro and a basket of currencies on an ongoing wave of risk aversion, while the New Zealand dollar hit a two-year low after a big interest rate cut.

The dollar's latest rally kicked off earlier in the day, after a 50 basis point rate cut by New Zealand's central bank to 7.5 percent wrong-footed many in the market who had been anticipating a smaller, 25 basis point chop [ID:nWEL000746].

Risk aversion also offered a broad boost to the low-risk, low-yielding yen, which hit its highest in nearly two years against the euro, while also gaining on high-yielders such as the New Zealand and the Australian dollars.

"It's part of a longer-term theme we've been seeing, where one of the G10 currencies gives way and it just cascades through the other currencies and before you know it, it's generalised dollar strength," said Adam Cole, global head of currency strategy at RBC Global Markets.

At the same time, the euro continued to struggle due to ongoing speculation that the euro zone economy is feeling the pinch of U.S. economic weakness.

The euro tumbled roughly half a percent to $1.3902, its lowest level since September 2007.

Against a basket of currencies belonging to major U.S. trading partners, the dollar rallied as high as 80.352, a level not seen since September last year.

Triggering the dollar's rally was weakness in the New Zealand dollar, which dropped more than 1.1 percent to $0.6439, its weakest level since September 2006. It dropped nearly 2 percent to 69.13 yen , its weakest in more than two years.

The yen rallied across the board, sending the dollar down nearly half a percent to 107.00 yen. The euro fell more than one percent to 148.81 yen, its lowest level since late October 2006.

Broad weakness in global shares has helped to cool demand for risky trades, which has benefitted the yen after the low-yielding currency for years had been used to pick up assets in higher-yielding currencies in "carry" trades.

RATE, ECONOMIC OUTLOOK

The New Zealand dollar plummeted after the central bank's second consecutive rate cut decreased the high-yielding currency's rate advantage, and analysts say that the view for more monetary loosening will keep the currency under selling pressure.

The euro also struggled after the European Commission on Wednesday said that regional economic growth will halve in 2008 from 2007 and inflation will be much higher because of financial turmoil, soaring commodity prices and housing market shocks.

It slashed its gross domestic product growth prediction for the euro zone to 1.3 percent from the 1.7 percent predicted in April. [ID:nLA155886]

The shift in the market's focus toward weakening growth outside of the United States enabled the greenback to brush aside news on Wednesday that Lehman Brothers posted third-quarter losses and failed to announce concrete plans to raise capital.

(Editing by Victoria Main)