* Yen falls on BOJ's share buying decision
* Steps seen supporting stocks, lessening risk aversion
* RBA slashes interest rates 100 bps to 3.25% as expected
* Australian dollar rallies vs yen and dollar
By Masayuki Kitano
TOKYO, Feb 3 (Reuters) - The yen fell broadly on Tuesday after the Bank of Japan said it would start buying shares held by Japanese banks, giving a boost to share prices and stirring hopes for an easing of risk aversion.
The BOJ said it would start buying up to 1 trillion yen ($11.1 billion) worth of shares held by financial institutions, adding that BOJ Governor Masaaki Shirakawa would hold a news conference at 0530 GMT on Tuesday.
The BOJ said it would buy the shares up until April 2010 and only pick up shares rated BBB- or above by ratings agencies.
"When taken alone, this is positive for shares and is likely to lead to an easing of risk aversion. It is a factor that is positive for stocks and negative for the yen," said Tomoko Fujii, head of Japan economics and strategy for Bank of America in Tokyo. The Australian dollar rallied against the yen and the dollar, hitting intraday highs after Australia's central bank cut its key cash rate 100 basis points to a record low 3.25 percent.
The rate cut came after Australia's government unveiled a new stimulus package totalling A$42 billion on Tuesday for the rapidly cooling economy.
"The interest rate cut was 1 percentage point as expected, and the market took that positively," said Akira Kato, a senior manager for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department. The rate cut was seen as a sign that Australian authorities were taking proactive measures amid the global financial crisis, Kato said, adding that if the Reserve Bank of Australia had made a smaller rate cut the market might have reacted negatively.
The Australian dollar also got a lift against the yen from the BOJ's announcement, he said.
The dollar rose 0.3 percent from late U.S. trading on Monday to 89.73 yen. The dollar rose to highs around 90.00 yen earlier, up from around 89.40 yen before the BOJ announced it would buy shares from banks.
The Australian dollar climbed 1.2 percent to $0.6389 and jumped 1.4 percent to 57.29 yen.
The yen is regarded as a safe haven currency as Japanese banks' losses from the credit market turmoil have been limited compared to their U.S. and European peers, and it tends to fluctuate in line with perceived shifts in risk appetite.
BOJ'S EQUITIES BUYING
Market players were sceptical that the BOJ's plan to buy shares from financial institutions would be enough to spur a sustained rally in Tokyo shares and recovery in risk appetite.
The Nikkei share average was 1 percent higher, having trimmed gains after rising by over 2 percent at one stage.
The timing of the BOJ's announcement, which came ahead of a scheduled policy meeting on Feb. 18-19, raises questions, said Bank of America's Fujii.
"I am very curious as to why it came out today," she said, adding that focus may turn to the conditions of Japanese banks' balance sheets.
Koji Fukaya, senior currency strategist for Deutsche Securities, said that the BOJ would likely buy shares that financial institutions were looking to sell to the market. The overall impact on the stock market may be neutral, he said.
"The measure may remove some negative impact but I do not think it will go so far as to have a positive impact," he said.
The BOJ's step was unlikely to alter the yen's overall trend, Fukaya said, adding that the risk of Japanese institutional investors repatriating funds from abroad ahead of Japan's fiscal year-end in March remained.
The dollar, which hit a 13-year low of 87.10 yen on trading platform EBS in January, may fall towards 87 yen to 85 yen by the end of March, Fukaya said.
The euro, which hit a seven-year low of 112.08 yen on EBS in January, could slide towards 110 yen, he said.
The euro rose 0.3 percent to $1.2885 and climbed 0.6 percent to 115.60 yen. ($1=89.75 yen) (Editing by Brent Kininmont)