MONEY MARKETS-Aussie interbank futures point at lower rates

* Aussie interbank futures signal next rate cut in August

* Dollar rates fall further after LIBOR, EURIBOR decline

HONG KONG, May 19 - Australian interbank futures pointed to a further reduction in the official cash rate on Tuesday after Reserve Bank of Australia Governor Glenn Stevens said he did not expect the domestic economy to rebound quickly.

The cost of borrowing dollars in Asia slid further as benchmarks like three-month dollar Libor and three-month Euribor plumbed new depths, indicating greater willingness to lend between banks amid optimism of a global economic recovery.

RBA's Stevens said Australian interest rates were "pretty low" compared with other countries but he added he did not expect the domestic economy, widely considered to be in recession, to bounce back to above-average growth quickly.

Analysts said the comments suggested rates could fall further.

"The RBA is keeping the door open for additional easing should conditions change. That is the key message," said Annette Beacher, senior strategist, TD Securities.

Interbank futures showed investors expect the RBA to next cut rates by 25 basis points in August, with rates seen bottoming at 2.5 percent in March 2010.

The RBA has lowered its key cash rate by 425 basis points since September to a record low of 3.0 percent to cushion the economy from the global downturn. But it kept rates steady at this month's meeting and is expected to stay pat in June too.

"It is key for the central bank to remind the market the next move is not necessarily up just because they have chosen to pause. Obviously a pause for a month or two does not signal the easing cycle is over," Beacher said.

Elsewhere, Asian lending rates for dollar funds extended their declines, with interest rates for 3-months falling to 0.78 percent from Monday's 0.81333 percent.

It followed the drop in three-month dollar Libor, which slipped around 4 basis points to a record low 0.78500 percent at the London fixings on Monday conducted by the British Bankers' Association. Three-month Euribor also hit a record low of 1.244 percent.

A quick reversal is unlikely.

"The fact that money market rates only recently fell to new lows even as the U.S. has been in recession for 17 months and the European downturn turns one-year old suggests that ... interest rates will have to remain low for an extended period of time," Merrill Lynch said in a report.

The report said unconventional policies may be phased out by end-2010 or early 2011.

Last week, European Central Bank President Jean-Claude Trichet said the ECB measures to stimulate the euro zone economy can be removed quickly when the economy improves.