* Euro extends gains vs USD, comes close to $1.12
* Bund yields post biggest rise in two years
* U.S. Q1 GDP disappoints dollar bulls
* Dovish RBNZ knocks kiwi hard
By Ian Chua
SYDNEY, April 30 (Reuters) - The euro was broadly higher on Thursday as German yields soared on easing deflation fears, while doubts about the strength of the U.S. recovery took a temporary toll on the dollar.
Bund yields posted their biggest daily rise in two years after German annual inflation accelerated faster than forecast in April, suggesting the euro zone is pulling away from deflation.
The euro came within a whisker of $1.1200, pulling well away from this month's low of $1.0521. It also powered towards 133.00 yen, reaching highs last seen on March 5. Against sterling, the common currency scaled a two-week peak of 72.28 pence.
In contrast, data showed the U.S. economy nearly stalled in the first quarter. A statement from the Federal Reserve, issued a few hours after the GDP data, said the slowdown was probably transitory but still suggested any interest rate hike will not happen soon.
"Our assessment is that September remains the next most likely time for the Fed to move," said David de Garis, senior economist at NAB.
The dollar index fell as far as 94.678, reaching a low not seen since late February. It was last at 95.194.
"The market is entering a data-watching period after the FOMC left its statement little changed, but U.S. data showed no signs of improving. This will likely mean that the recent positioning unwind can continue and some further USD weakness is likely," analysts at ANZ wrote in a note to clients.
The greenback managed to hold its ground against its Japanese peer, staying just above 119.00 yen.
The Bank of Japan is expected to trim its inflation and growth forecasts at the conclusion of a policy review later in the day.
Also in the cross hairs of sellers was the New Zealand dollar, which shed nearly a full U.S. cent in response to dovish comments from the Reserve Bank of New Zealand (RBNZ).
The kiwi fell to a low of $0.7593, from $0.7683 after the RBNZ said it could cut interest rates if domestic demand weakened and inflation pressures fell.
There is little in the way of major economic data out of Asia on Thursday, leaving the focus on the BOJ. (Editing by Eric Meijer)