* Yen rallies to 5-week high vs dollar
* Volatile stock markets keep risk aversion intact
* RBA rate cut keeps focus on lower global rates
(Adds quotes, updates prices)
By Naomi Tajitsu
LONDON, Dec 2 (Reuters) - The yen rallied to a five-week high versus the dollar on Tuesday as volatile stock markets reflected continued risk aversion, while investors anticipated dramatic interest rate cuts later in the week.
An unexpectedly bold 100 basis point cut from the Reserve Bank of Australia kept the Australian dollar under pressure, while raising speculation that other central banks may follow suit with aggressive easing to revive flagging economies.
A steep slide in the yuan to the bottom of its trading band against the dollar supported the U.S. currency as it raised speculation that China may be shifting its forex policy to allow the yuan to depreciate to stimulate the economy.
The dollar has found support in recent months from deleveraging as investors cut exposure to riskier assets and repatriated returns into the U.S. unit.
Analysts said expected rate cuts this week would further benefit the dollar as they would shrink the yield advantage of currencies such as the euro and sterling.
"The dollar is supported generally because we're seeing a move towards a convergence of global rates with low U.S. and Japanese rates," said Chris Turner, head of currency strategy at ING in London.
"That makes the dollar less unattractive (from a yield perspective) in a way," he said, noting the possibility of aggressive rates cuts in the UK, euro zone, Sweden and New Zealand this week.
The dollar fell as low as 92.64 yen according to Reuters data, before recovering to 93.14 yen by 1130 GMT, little changed on the day.
China's yuan closed at the bottom of its daily trading band against the dollar, which analysts said left open the door to a slow yuan depreciation, triggering a surge in yuan/dollar volatility.
The low-yielding Japanese currency pushed higher on an early tumble in European shares, which had prompted investors to unwind more carry trades, in which the yen is used to fund purchases of assets in higher-yielding currencies.
This had initially put yen crosses under selling pressure, but a claw back in shares to trade 0.4 percent higher on the day later helped to cut yen gains.
The euro was steady at 117.65 yen, while the Australian and New Zealand dollars climbed roughly 1.0 percent each.
The euro steadied versus the dollar to $1.2650, but sterling fell 0.6 percent $1.4792. The UK currency stayed weak across the board, pushing sterling/yen as low as 137.14 yen, its weakest level since mid-1995.
MORE RATE CUTS
A Reuters poll shows that a majority of economists expect the Bank of England to slash rates by 100 basis points on Thursday, a month after chopping them by 150 basis points to 3.0 percent.
Also on Thursday, the European Central Bank is seen cutting rates by at least 50 basis points from 3.25 percent and possibly more. Market participants expect the Reserve Bank of New Zealand to cut rates by 100 basis points or more from 6.5 percent.
Sweden's central bank said on Monday it would hold its next policy-setting meeting this Wednesday, nearly two weeks ahead of schedule, prompting speculation of a deep rate cut.
Markets expect Swedish rates to be cut as much as a full percentage point. The outcome of the meeting will be announced on Dec. 4.
The Bank of Japan held an emergency policy meeting on Tuesday and announced the central bank will accept a wider range of corporate debt as collateral in money market operations to help ease a squeeze in credit markets.
The BOJ held interest rates steady at 0.3 percent as expected at the meeting.
Rates and economic weakness were overarching themes in the market following official confirmation on the state of the U.S. economy late on Monday, when the National Bureau of Economic Research's business cycle dating committee said the economy slipped into recession in December 2007.
U.S. Federal Reserve Chairman Ben Bernanke said the economy remained under considerable strain, and that the central bank had alternative tools it could employ as interest rates approach zero.
Traders said U.S. stocks had extended losses on reports that Goldman Sachs is likely to report net losses of as much as $2 billion for its latest quarter.
(Editing by David Stamp)