* Yen slides as stock rebound spurs short-covering
* Nikkei jumps 6.4 pct from 26-yr low, boosts cross/yen
* Euro hits 2-1/2-year low vs dollar on ECB rate outlook
* RBA intervenes to prop up Aussie for third day
By Rika Otsuka
TOKYO, Oct 28 (Reuters) - The yen pulled away from a 13-year high against the dollar on Tuesday as a 6 percent surge in Tokyo shares and growing caution about the possibility of official intervention halted the Japanese currency's broad surge.
The Nikkei share average <.N225> jumped 6.4 percent from a 26-year low struck earlier in the day, lighting a fire under the euro and Australian dollar, two of the currencies most battered against the yen.
The Nikkei's plunge and yen's big gains this month have reinforced each other. Falling stocks prompt investors to dump higher-yielding currencies against the yen, and the rise in the Japanese currency adds to the selling pressure in Japanese stocks.
Analysts said that vicious circle may have been why Japan succeeded in getting Group of Seven economic powers to warn against excessive yen volatility on Monday, a move seen as opening the way for Japanese officials to intervene and weaken the yen if necessary.
"A sharp rebound in Japanese stocks triggered speculator short-covering in dollar/yen and euro/yen. There was nothing more behind their rally," said Hiroshi Yoshida, a forex trader at Shinkin Central Bank.
Yoshida said this was just a temporary pause in the yen's broad rebound that has driven it up nearly 20 percent on a trade-weighted basis <.IBOXXFXJPY> this month as the market turmoil has forced investors to unwind carry trades.
Carry trades have collapsed in recent weeks, sending the yen to a 6-1/2-year high against the euro and an all-time peak versus the Australian dollar, as concerns over the deteriorating global economy have prompted funds facing investor redemptions to sell assets for cash.
The euro hit a 2-1/2-year low against the dollar, a day after European Central Bank President Jean-Claude Trichet said the bank could cut rates at its policy meeting next week. [ID:nLR566958]
The dollar jumped 2.9 percent from late U.S. trade to 95.41
The euro surged 3.6 percent to 119.99 yen
The euro was up 0.9 percent at $1.2577
Despite the yen's fall on Tuesday, few in the market believe the upward trend in the Japanese currency has run its course.
For one thing, many in the market are doubtful that intervention would be effective enough to change the current trend in the market unless it is an internationally coordinated one.
But French Economy Minister Christine Lagarde said on Monday any intervention on the yen would be a purely Bank of Japan undertaking. [ID:nPAB004453]
Traders said the yen is likely to test a 13-year peak against the dollar sooner or later if Japanese investors, who still have lots of overseas assets, decide to dump them.
"Market participants, including players of yen carry trades, hedge funds and Japanese individual investors, continue to trim their assets as Japanese stocks have fallen so much," said Hideki Hayashi, chief economist at Shinko Securities.
Despite Tuesday's gains, the Nikkei has lost more than half its value this year.
Trichet's comments about a possible rate cut next week surprised the market and investors are now speculating about the the size of a move. Earlier this month, the ECB cut rates by 50 basis points together with other central banks including the Federal Reserve.
The Fed is also seen cutting rates at its two-day meeting
starting on Tuesday. Many in the market expect the Fed to slash
the fed funds rate -- currently at 1.50 percent -- by at least 50
basis points.
The Australian dollar climbed 3.0 percent against the U.S.
dollar to $0.6204
It was the third straight day that the central bank entered the market to help the Australian dollar, which has lost more than 35 percent against the U.S. dollar since peaking in July. (Editing by Hugh Lawson)