Aussie at 1-month low vs yen; bills dip on rate view

* Aussie slips to month low against soaring yen

* Bill futures dip on RBA comments that local rates must rise

SYDNEY, Sept 28 - The Australian dollar slid to a near one-month low against the yen on Monday as a surge in the Japanese currency to eight-month peaks sparked a retreat from riskier assets.

The Aussie hit a low of 76.50 yen <AUDJPY=>, shedding more than two percent from the 78.79 yen seen here late Friday, and overshadowing comments from the chief of the Reserve Bank of Australia that local interest rates must rise as the economy recovers. [ID:nSYD395526]

The yen had firmed earlier in the day after Japan's Finance Minister Hirohisa Fujii said its rise was not abnormal, fuelling talk authorities would not intervene in its gains. But the yen eased later in the day when Fujii seemed to backtrack on those comments. [USD/]

"The yen weakened after the finance minister said he did not endorse a strong yen but the damage was already done, and risk aversion was in place" said Anthony Botros, a trader at Easy Forex.

The softer yen late in the session allowed the Aussie to rebound slightly to 77.20 yen.

The Aussie fared better against the U.S. dollar, holding above a key technical level of $0.86.

It steadied around $0.8631 <AUD=D4>, down from Friday's $0.8693, and testing the floor of an upward trend channel that started in mid February at around $0.8615.

Traders said the Aussie has room to bounce further as the U.S. dollar is likely to continue its recent slide.

Expectations that U.S. rates will stay near zero for a while and that ultra-easy monetary and fiscal policies would remain in place for now, combined with selling pressure from the carry-trade to push the U.S. dollar to a one-year low last week.

"The U.S. dollar weakness story is still around although it is off the boil a little bit," Botros said.

Higher safe-haven bids boosted U.S. Treasuries in Asian trade and pushed up Aussie bond futures. The three-year contract <YTTc1> rose 0.02 points to 95.18, while the 10-year contract <YTCc1> added 0.085 points to 94.775.

Aussie December bill futures <0#YBA:> shed 0.03 points to 96.31, taking a knock from talk of imminent local rate hikes.

Local rates stand at 3 percent now. Investors are mulling a 50-50 chance of a 25-basis-point-rate hike in November <0#YIB:>, and are fully priced for a rise in December. ----------------(Snapshot at 4:45 p.m./0645 GMT)---------------- FUTURES CASH YIELD 90-DAY BILL 90-DAY BILL<YBAc1> (DEC) 96.31 (-0.03) AU3MBB=RR 3.30 (3.27) 3-YR BOND <YTTc1> (DEC) 95.18 (+0.02) AU3YT=RR 4.60 (4.62) 10-YR BOND <YTCc1> (DEC) 94.775(+0.085) AU10YT=RR 5.24 (5.34) AUD/USD <AUD=> 0.8693 (0.8693) US10YT=RR 3.32 (3.38) ---------------------------------------------------------------- AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD USD +319 (+322) +192 (+196) *FUTURES +0.405(+0.47) CAD +289 (+290) +188 (+194) *AUD 2-YR/10-YR SPREAD NZD +9 (+9) -38 (-28) *CASH +107 (+118) ----------------------------------------------------------------