* Coordinated c.bank action eyed after RBA slashes rates
* Aussie, kiwi gain nearly 2 pct vs yen after plunge
* Nikkei trims losses after hitting 5-yr low, down 2 pct
* BOJ keeps rates on hold as expected
By Rika Otsuka
TOKYO, Oct 7 (Reuters) - The yen retreated against other major currencies on Tuesday after Australia's central bank stunned markets by slashing interest rates a full percentage point, stoking expectations that other top central banks could follow suit.
The Reserve Bank of Australia chopped rates to 6 percent, a move that improved investor appetite for risk and boosted stocks, higher-yielding currencies and commodities. [ID:nSYD359267]
The yen also edged off a three-year high against the euro and a five-year peak versus the Australian dollar as some investors booked profits, believing the panic selling of those currencies the previous day had gone too far.
"Financial markets are underestimating the U.S. bailout package and other measures taken by authorities. But as you can see from market reaction after the RBA's rate cut, risk appetite will gradually return," said Osamu Takashima, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.
Worries that the financial crisis is spreading from the United States to the rest of the world and pushing the global economy into a recession sparked a sharp stock sell-off on Monday as investors rushed to safe havens such as gold, government bonds and the yen.
The dollar posted its biggest one-day slide since the massive 1998 unwind of carry trades. The high-yielding Aussie, long a favourite in the carry trade, collapsed nearly 11 percent -- the biggest drop since the Aussie was allowed to trade freely in 1983.
But on Tuesday, market players hesitated to chase the yen further, thinking global financial authorities are likely to take more measures to help restore confidence in the worst financial crisis since the Great Depression of the 1930s.
"Investors believe global central banks could do anything," said Tsutomu Soma, senior manager of foreign assets at Okasan Securities. "The next step could be coordinated interest rate cuts, interventions in the foreign exchange market or more fund injections into money markets. Who knows?"
The dollar climbed 0.9 percent from late U.S. trade to 102.71
yen
The euro gained 0.7 percent to $1.3581
The single currency jumped 2 percent to 139.58 yen
The dollar has been boosted as well by the freeze in money markets that has forced banks to buy much-needed dollars to settle deals on the open market, hitting a 13-month high against a basket of currencies <.DXY>.
"Money market rates remain at painfully high levels, showing the fund shortage problem is still serious," said a trader at a big Japanese bank. "People have little choice but to buy the dollar and the safe-haven yen as long as the situation stays the same."
After the RBA rate slash, Tokyo's Nikkei average <.N225> trimmed losses to be down about 2 percent after sinking below the psychologically important 10,000 level to a five-year low in early trade.
The market shrugged off the BOJ keeping rates on hold, with few market players expecting Japan to join any coordinated rate cuts because its short-term rates are already so low at 0.5 percent.
The Australian dollar soared 2.3 percent to 74.42 yen
In the six trading days to Monday the Australian dollar had plunged more than 16 percent against the yen.
Against the dollar, the Aussie edged up 0.6 percent to
$0.7245