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The Blues have been condemned to their fifth straight Super Rugby loss, although they pushed the Highlanders all the way in a 30-27 defeat in Dunedin.
Both sides ran in two tries, while home fly-half Mike Delany won the kicking duel with opposite number Gareth Anscombe.
The Blues had a chance to level the scores in added time, but new captain Luke Braid opted to go for the win instead and was made to regret that choice as the Highlanders held off a last-gasp onslaught from their New Zealand rivals.
The Highlanders knew they were in for a tough contest when the Blues made the best possible start thanks to a try in the corner by full-back Hadleigh Parkes with just three minutes gone.
Ma'a Nonu pounced on a dropped pass by Shaun Treeby, broke a tackle and from an ensuing ruck, the ball was spread wide to Parkes for the opening score.
Anscombe failed to add the extras and the Highlanders hit back with a try from Treeby - the centre making amends for his earlier spill by taking a pass from Hosea Gear over the line.
Delany was more successful with his own touchline conversion and then added his first penalty of the match minutes later to extend the lead to 10-5.
The fly-half increased his team's lead even further with his second penalty but Anscombe closed the gap with his first three-pointer from in front of the posts before adding another to make it 13-11 as the half-hour mark approached.
Anscombe was then able to edge the Blues back in front with his third successive penalty, but the lead changed hands once more before half-time thanks to Delany's accurate boot, leaving the hosts 16-14 ahead at the break.
The tight battle continued in the second half, with traded penalties allowing the Highlanders to go 22-20 up as referee Bryce Lawrence's whistle continued to dominate.
Blues coach Pat Lam replaced Alby Mathewson for the under-fire Piri Weepu, but the All Blacks scrum-half made an immediate impact as he played in Rene Ranger for the third try of the match from close range.
Anscombe converted and the Blues led 27-22 before Delany kicked his sixth penalty after a frantic Highlanders attack to cut the lead to two points heading into the closing stages.
But it was the hosts who grabbed the win when replacement Kurt Baker doggedly pursued Gear's kick, which Ranger knocked back over the visitors' try-line.
Baker dived on the loose ball to score while Delany missed the conversion, but the Highlanders were in front and held on over the final 10 minutes.