(Changes byline, updates prices, adds quotes)
By Toni Vorobyova
LONDON, July 20 (Reuters) - A widely expected Chinese interest rate hike gave the yen a small boost on Friday, but the low-yielding Japanese currency remained under pressure as risk-seeking investors continued to pile into carry trades.
News on Thursday that China's economic growth surged to an 11-1/2 year high in the second quarter had primed the markets for a 27 basis points rate rise, which was delivered on Friday.
With the tightly controlled Chinese yuan unable to rise much when policy is tightened, investors have traditionally bought the yen as a proxy.
Rate hikes are also negative for equities, falls in which tend to weigh on risk appetite, making investors less keen to put on risky carry trades funded in the low-yielding yen.
This time however risk appetite seemed to be holding up, putting a cap on any recovery in the yen, while high-yielding currencies like the New Zealand dollar remained well bid.
"The China interest rate hike should be a little bit of a positive for the yen, but the broader picture still remains that people want to be in high yielding assets and in the riskier end of the spectrum," said Daragh Maher, senior currency strategist at Calyon.
By 0951 GMT the euro was at 168.60 yen -- up 0.15 percent on the day, but below session highs at 168.90 <EURJPY=>.
The dollar was up 0.2 percent at 122.26 yen <JPY=>.
The euro was steady at $1.3788 <EUR=> after hitting record highs of $1.3833 earlier in the week according to Reuters data.
The New Zealand dollar hit a 21-year high against the yen <NZDJPY=R>, while the Australian dollar scaled a 16-year peak versus the Japanese currency <AUDJPY=R>.
Australia and New Zealand have the highest interest rates in the industrialised world -- at 6.25 and 8.00 percent respectively -- and both central banks are seen hiking further.
"The further acceleration in the pace of growth of the Chinese economy suggests that the terms of trade boom that is driving the commodity currencies higher is likely to continue to be a dominant theme for markets," Citi said in a research note.
Although European stocks turned slightly negative on Friday, equities have generally performed strongly, with the Dow Jones index closing above 14,000 for the first time on Thursday [.N].
This has calmed investors' concerns about troubles in the U.S. subprime market - which caters to borrowers with a troubled credit history -- spilling out into a more global problem.
The dollar, however, remains weighed down by subprime woes.
Federal Reserve Chairman Ben Bernanke said on Thursday losses on subprime loans -- those to customers with poor credit -- could hit $100 billion and threaten consumer spending.
Bernanke's testimony to the U.S. Senate Banking Committee supported the prevalent view among investors that the Fed was likely to keep rates unchanged at 5.25 percent this year. By contrast, central banks in many other major economies are expected to raise rates, putting pressure on the dollar.
St. Louis Fed President William Poole is due to speak on subprime mortgages at 1430 GMT.