Aussie dollar up on stocks rally; bills surge

* Aussie up against most major currencies on stock rally

* Stocks jump on tentative U.S. deal to bail out auto sector

* Bills surge as hefty rate cuts priced in

SYDNEY, Dec 10 (Reuters) - The Australian dollar nudged higher on Wednesday after a spurt in regional stocks spurred investors to take on more risk and buy higher-yielding currencies.

A tentative agreement in the United States to rescue the car industry and hopes that Asian governments will also rescue the region's ailing sectors, such as technology, pushed Asian stocks up 3 percent on Wednesday to a one-month high.

The Aussie has tended to track stock markets as a barometer of risk aversion in recent months because it is typically seen as a riskier investment compared to the yen or U.S. dollar due to its higher yield.

But analysts said the Australian dollar, which has lost about a third of its value this year, should continue to fall against the dollar in the coming months, dragged by a global recession.

"Stock markets are extending gains so the Aussie is extending gains as well," said a trader at a regional foreign exchange trading firm. He said the currency is expected to rise to $0.6680 near term, which would still be below the week's high of $0.6691.

The Aussie traded at 0.6595 in late trade here, up from $0.6572. It was also firmer against the yen at 61.07 yen, compared to 60.94 yen in late afternoon trade here on Tuesday.

Japan's Nikkei average <.N225> rose 3.2 percent, Hong Kong's stock index was up 3.6 percent, and the MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> rose over 3 percent to a one-month high. U.S. stock futures were up 0.92 percent.

Traders said a rise in commodity stocks in Australia also supported the Aussie because it stoked hopes demand for commodities will not drop sharply as the global economy slows.

Oil rebounded by more than $1 a barrel on Wednesday ahead of a meeting by producer cartel OPEC on Dec 17, when more output cuts are expected to support oil prices. Australia is a big exporter of commodities including iron ore, wheat and coal.

However, Joseph Capurso, a currency strategist at the Commonwealth Bank of Australia, said the income Australia earns from selling commodities will eventually fall when firms agree on new contracts with lower prices on the back of weaker demand.

"The downtrend in the Aussie has further to run," Capurso said in a note. "We expect the Aussie to fall below $0.60 in the March quarter," he said, adding the central bank is expected to cut interest rates to 3.75 percent in early 2009 from the current 4.25 percent.

Rate cut expectations saw bill futures rally. The March contract is fully pricing in the chance that the cash rate will be cut to 3.25 percent early next year from 4.25 percent now as the central bank steps up efforts to shore up the economy.

Reserve Bank of Australia (RBA) Governor Glenn Stevens on Tuesday said there was scope for more monetary and fiscal easing, and he did not rule out the option for a board meeting next month. The central bank's board usually does not meet in January due to the holiday season. [nSYD149769]. ---------------(Snapshot at 4:15 p.m./0515 GMT)----------------- FUTURES CASH YIELD 90-DAY BILL (DEC) 95.500(+0.140) 4.58 (4.66) 3-YR BOND (DEC) 96.460( 0.000) 3.50 (3.49) 10-YR BOND (DEC) 95.550(-0.014) 4.48 (4.32) AUD/USD 0.6595 (0.6572) US 10-YR 2.67 (2.72) ---------------------------------------------------------------- AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD USD +221 (+213) +181 (+160) *FUTURES +0.910 (+0.780) CAD +151 (+149) +140 (+122) *AUD 2-YR/10-YR SPREAD NZD -146 (-155) -31 ( -48) *CASH

+139 (+124) ----------------------------------------------------------------