By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, March 2 (Reuters) - The Australian dollarhovered near recent lows led by a broad risk-off move after U.S.President Donald Trump imposed a tariff on imported steel andaluminium, triggering fears of a global trade war.
Australia, as an open economy, relies heavily oninternational trade and capital. It is particularly vulnerableto a U.S.-led trade war, which threatens the outlook for globalgrowth and the demand for commodities.
These worries drove investors to the safety of bonds, yenand Swiss francs, causing a widespread sell-off elsewhereincluding in equities markets.
The Australian dollar AUD=D4 went as deep as $0.7713 onThursday, the lowest since late December. It bounced in theearly hours of Friday to last quote at $0.7755.
The rebound was not large enough and the Aussie is still setfor a second straight week of losses.
Against the safe haven yen, the Aussie hit its lowest sinceJune 2017 at 82.09. AUDJPY=R .
"Trump's decision to impose a 10 percent tariff on importedaluminium and 25 percent on steel, is bad policy at a bad timeand will only add to the risk of a trade war," said ShaneOliver, chief economist at AMP Capital.
"It's bad timing because the U.S. economy and labour marketare already running hot. It doesn't need more 'help'," Oliveradded. "In terms of whether we see a global trade war or not,China is the country to watch."
Oliver expects the Asian giant to work with other countriesin mounting a challenge at the World Trade Organisation and"develop its image as the 'good guy' in terms of supporting freetrade."
Across the Tasman Sea, the New Zealand dollar NZD=D4 benefited from the broad sell-off in the greenback to rise 0.5percent overnight, becoming the best performing major currency.
It was last up 0.2 percent at $0.7264, above a recentthree-week low of $0.7186, but was still set for a modest weeklyloss.
"The kiwi didn't quite get down...and has bounced on weakerUSD sentiment," said Philip Borkin, senior economist at ANZBank, in a research note.
"A further squeeze higher is possible today, although wewould be looking to fade moves up above 73 U.S. cents."
The gains in the kiwi meant it was near a seven-month peakagainst its Australian counterpart AUDNZD=R .
Australian government bond futures rose, with the three-yearbond contract YTTc1 up 1.5 ticks at 97.930. The 10-yearcontract YTCc1 also climbed 1.5 ticks to 97.2750. (Editing by Kim Coghill)