News: UPDATE 1-NZ First touts progress in talks to form govt, but decision delayed

• NZ First leader says huge progress made in negotiations
• Decision announcement delayed until after Thursday
• NZ dollar rises on bargain hunting

(Adds NZ First leader quote, market/currency reaction)

WELLINGTON, Oct 11 (Reuters) - The leader of the small nationalist party that will decide New Zealand's next government said on Wednesday that "huge" progress had been made in coalition talks, but he has dropped a self-imposed deadline of Oct. 12 to announce the new government.

Prime Minister Bill English's ruling National Party won 56 seats at the Sept. 23 election, while a Labour-Green bloc have 54 seats, leaving both needing New Zealand First's nine seats to meet the 61 seats needed for a majority in parliament.

"We're making huge progress finding what we agree on, what we don't agree on, what we can still negotiate on, where we might take things into the future by co-operation," NZ First leader Winston Peters said after four days of talks.

Peters told local media on Tuesday evening that he would not be ready to announce his choice by Thursday - a self-imposed deadline.

Peters has held the balance of power now three times and has previously served in both National and Labour governments.

The New Zealand dollar has fallen around 3.7 percent since the election against the U.S. dollar. The political uncertainty this week took the currency to its lowest levels since late May at $0.7052.

The Kiwi has also been under pressure over concerns New Zealand First would see the new government adopt more economically interventionist policies. The party favours restrictions on foreign ownership and more central bank intervention in the foreign exchange market.

On Tuesday, Peters fuelled those concerns by telling reporters that exporters would welcome the recent fall in the local dollar, adding: "If you're an export-dependent nation, why would you persist with an inflated dollar?"

On Wednesday, the Kiwi recovered ground, climbing to $0.7095, its highest since before the final election tally was released on Saturday.

Investors were taking advantage of the lull before Peters announces his decision to buy the currency while it was cheap and get out of short positions, according to brokers.

"It's still anyone's guess which way the penny's going to drop with NZ First and people that have been short on the Kiwi will suddenly be thinking: 'I may as well take some risk off the table here'," said Stuart Ive, Wellington-based dealer at OM Financial.