FOREX-Euro down as euro zone PMI eyed after China survey fails to excite

* Euro zone flash PMI awaited for fresh market cues

* China PMI shows mixed picture, fails to excite markets

* Kiwi falls 0.9 pct, dented by benign inflation data

* RBNZ may keep rates on hold for longer as inflation slows (Updates prices, adds comments)

By Masayuki Kitano and Shinichi Saoshiro

SINGAPORE/TOKYO, Oct 23 (Reuters) - The euro eased on Thursday with the focus turning to a gauge of euro zone business activity due later in the day, while the kiwi slid after a surprisingly weak reading on inflation in New Zealand.

The U.S. dollar managed to stay above water, though a largely muted reaction was seen in currency markets to a survey showing China's factory sector grew a shade faster in October, as the details underscored a still-shaky economy.

The New Zealand dollar slid 0.9 percent to $0.7856 in the wake of softer-than expected inflation data that could give the Reserve Bank of New Zealand room to further delay its next interest rate hike.

The euro eased 0.1 percent to $1.2637, having touched a one-week low of $1.2633 earlier on Thursday.

Market focus was on the euro zone business sentiment PMI due later in the session. Signs of the euro zone economy losing momentum have helped feed global growth fears this month, and any fresh suggestion of economic weakness is expected to push the euro lower.

"The euro will come under pressure if the PMI readings disappoint. But it will not benefit the dollar too much in turn, as U.S. yields still remain relatively low," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"Market players are hesitant to build positions ahead of next week's Federal Reserve meeting, especially as officials have sent dovish signals recently," he said.

The dollar has lost ground in recent weeks as concerns about slowing global growth prompted investors to trim bets that the Fed will raise interest rates soon after an expected end to its bond-buying stimulus later this month.

A weak euro zone PMI reading could add to such worries and act as a drag on the dollar.

At the same time, the euro has been hampered by speculation of further monetary easing by the European Central Bank.

"I get the sense that there are people who think the euro is a sell, based on monetary policy-related topics," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

Reuters had reported on Tuesday that the ECB is considering buying corporate bonds on the secondary market and may decide on the matter as soon as December.

Concerns over the health of the European banking sector have also weighed on the common currency, and were further heightened after Spanish newswire Efe said on Wednesday that at least 11 euro zone banks had failed stress tests run by the ECB.

The ECB, which will publish the test outcomes for 130 banks on Sunday, said final results had not yet been sent to the lenders involved, and it could not comment on individual institutions.

With the euro on the defensive, the dollar managed to edge up 0.1 percent against a basket of major currencies to 85.808 .

Against the yen, the dollar rose 0.2 percent to 107.33 yen .

The Australian dollar showed limited reaction to the survey on China's manufacturing activity.

The Aussie dollar, which is often seen as a liquid proxy of Chinese growth prospects given Australia's large trade exposure to China, eased 0.2 percent on the day to $0.8756. (Additional reporting by Ian Chua in Sydney and Naomi Tajitsu in Wellington; Editing by Eric Meijer & Shri Navaratnam)