* Australian money markets see more rate cut chances
* Thai yield curve seen steeper on supply concerns
* Dollar funding costs ease on record low LIBOR
HONG KONG, June 17 (Reuters) - Australian interest rate swaps rose on Wednesday erasing some of the gains from a recent rally but it did not diminish prospects of a cut in the cash rate amid concerns the economic recovery would not be as robust as previously expected.
The cost of borrowing dollars in Asia slid further after the LIBOR benchmark continued to post record lows on confidence there would be less risk of counterparty defaults in the interbank lending market.
In Australia, three year rate swaps fell to a low of 4.56 percent but ended at 4.69 percent, marginally higher than the previous close of 4.65 percent. That contract has come off the recent high of around 5 percent.
"We opened bullishly in line with how the U.S. Treasuries closed but we gave up at the back end of the day, but I don't think there is a lot to read into it," said Peter Jolly, head of research at NAB, who expects another 50 basis points of rate cuts towards the end of the year.
On Tuesday, the Reserve Bank of Australia (RBA) released its June 2 meeting minutes which backed the market view that it was done with rate cuts but also indicated it was ready to move in if the situation warranted.
"We had got to the position last week the RBA is going to rule out any chance of a rate cut and it is natural the market has corrected in the last few days," said Sally Auld, interest rate strategist with JPMorgan.
"There is a chance that the RBA may cut rates especially given the fact that global situation is looking a little more fragile than it did a couple of weeks ago."
Auld expects a rate cut either in the fourth quarter this year or in the first quarter of 2010.
In Thailand, the yield curve is expected to steepen after the lower house of parliament approved the first of two major fiscal bills authorising the government to borrow 800 billion baht ($23.4 billion) to fund stimulus spending and fiscal deficits.
"Going forward, we do not expect the BoT to hike rates any time soon. We see scope for front-end yields to correct lower. However, the long-end may remain bearish on supply worries," Standard Chartered Bank said in research report.
The Bank of Thailand surprised investors in May by keeping its interest rate unchanged at 1.25 percent, after cutting it by a combined 2.50 percentage points since December to revive the economy. That spurred some talk of a rate increase.
The yields on the two-year bonds fell by 2 bps to 2.08 percent and that on the five-year by 4 bps to 3.26. The long end of the curve was steady.
Elsewhere in Asia, the cost of borrowing dollars fell after three-month dollar London interbank offered rate was fixed at 0.61313 percent overnight -- a new low and down from 0.61438 percent on Monday.
Three-month dollar funding rates in Singapore dipped to 0.61857 percent from 0.61929 percent. (Reporting by Umesh Desai; Editing by Jan Dahinten)