By Ron Harui and Tracy Withers

Sept. 1 (Bloomberg) -- The New Zealand dollar fell to a two-week low against the yen on speculation that rising oil prices and weaker stocks will prompt investors to pare holdings of higher-yielding assets.

New Zealand's dollar declined for a second day as oil prices gained after Hurricane Gustav approached the Gulf of Mexico, halting most oil and gas output and shutting local refineries. The currency also weakened as the difference in yield between two-year New Zealand and Japanese bonds narrowed to 5.25 percentage points today, the least since July 25.

``Soft stocks and rising risk aversion sent yen cross rates south,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington.

The New Zealand dollar dropped 0.9 percent to 75.58 yen at 1:00 p.m. in Wellington, from 76.25 yen late in New York on Aug. 29. It reached 75.57 yen, the lowest since Aug. 14. The currency, known as the kiwi, lost 0.4 percent to 69.78 U.S. cents from 70.05 cents.

The MSCI Asia-Pacific Index of regional shares slipped 1 percent after the Standard & Poor's 500 index fell 1.4 percent on Aug. 29. The kiwi-yen and the MSCI Asia-Pacific Index had a correlation of 0.82 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they moved in lockstep.

The benchmark interest rate is 8 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., making the currency a popular target for international investors seeking higher returns.

`Major' Hurricane

Gustav, downgraded to a Category 3 storm by the National Hurricane Center in Miami yesterday, may strengthen to Category 4 later today and will make landfall as a ``major'' hurricane, according to the U.S. National Hurricane Center.

The storm shut three-quarters of oil output in the region and refineries operated by Valero Energy Corp., ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp.

The kiwi also declined on expectations that Reserve Bank of New Zealand Governor Alan Bollard will cut rates at his next review on Sept. 11 as the economy slows. Fourteen of 15 economists surveyed by Bloomberg News expect a quarter- percentage point cut and one expects a half-point reduction.

New Zealand government bonds rose, pushing the yield on the three-year note down 1 basis point, or 0.01 percentage point, to 6.07 percent. The price of the 6 percent security due in November 2011 rose 0.021, or NZ$0.21 per NZ$1,000 face amount, to 99.803.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.netLast Updated: August 31, 2008 21:04 EDT

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