TOKYO, Oct 7, 2008 (AFP) - The yen eased back while the euro rebounded in Asia Tuesday as global markets showed signs of stabilising, helped by a big cut in Australian interest rates, dealers said.

The move sparked hopes that other central banks could also lower borrowing costs to try to prop up their ailing markets and economies.

The euro rose to 1.3575 dollars in late Tokyo trade from 1.3523 in New York late on Monday, when it had struck a 14-month low. The euro gained to 139.70 yen from 137.75.

The dollar was at 101.90 yen, well off a seven-month low of 100.24 seen on Monday.

The Reserve Bank of Australia surprised markets by slashing interest rates by 100 basis points to 6.0 percent.

The Australian dollar hit a two-year low after the announcement, continuing a steep decline since hitting a 25-year high of 98.49 US cents in mid-July. In late Sydney trade the Australian dollar stood at around 73 cents.

Analysts said the boost to sentiment from the rate cut could be short-lived as uncertainty and fear continue to grip markets.

They said the Japanese currency is expected to resume its upward trend as investors shun risk.

'The rate cut won't resolve the root of the financial crisis,' Hiroshi Yoshida, a senior Shinkin Central Bank dealer, told Dow Jones Newswires.

Japan's central bank left its key interest rate steady at 0.5 percent and governor Masaaki Shirakawa showed little enthusiasm for coordinated rate cuts, saying monetary policy should be decided by each country.

The yen has been in demand of late as jittery investors buy back the currency to unwind risky positions funded with cheap Japanese credit.

The Japanese Nikkei-225 index fell below the key 10,000-point level briefly on Tuesday for the first time in almost five years.

'Investors are panicking. They don't know what's going to happen next,' said Ryohei Muramatsu, manager of Commerzbank's Group Treasury Asia in Tokyo.

The plunges on global markets reflected a lack of confidence in the recent efforts by the US and European authorities to try to ease fears about credit flows drying up and to stabilise their banking systems, he said.

Market players 'doubt whether the rescue measures by governments are going to work. Even if they do, they are coming too late. Action should have been taken a lot sooner,' said Muramatsu.

Finance chiefs from the Group of Seven rich nations are scheduled to meet Friday in Washington.

Against regional Asian currencies, the dollar rose to 1,329.90 South Korean won from 1,272.50 on Monday, to 32.36 Taiwan dollars from 32.32 and to 47.46 Philippine pesos from 47.39.

It gained to 9,595 Indonesian rupiah from 9,570 and to 34.43 Thai baht from 34.37, while slipping to 1.4608 Singapore dollars from 1.4616.