FOREX-Aussie rebounds after short-lived dip on RBA rate cut

* Choppy moves in Aussie after RBA cuts interest rates

* Aussie fell initially but quickly rebounds sharply

* Market players wonder whether RBA easing cycle is over (Updates prices, adds comments)

By Masayuki Kitano

SINGAPORE, May 5 (Reuters) - The Australian dollar rebounded sharply after slipping initially as the Reserve Bank of Australia cut interest rates, as market players wondered whether the RBA's easing cycle may be over for now.

The Australian dollar rose 0.8 percent on the day to $0.7903 . The Aussie had fallen to as low as $0.7787 shortly after the RBA rate cut was announced, but quickly bounced back from there.

Australia's central bank cut its cash rate a quarter point to an all-time low of 2.0 percent on Tuesday, aiming to spur a sluggish domestic economy while keeping downward pressure on the local dollar.

Most analysts had been expecting the RBA to ease policy on Tuesday. A Reuters poll of 27 analysts showed that 20 had expected the RBA to cut rates to 2.0 percent.

After its initial drop, the Australian dollar quickly bounced back on short-covering and profit-taking, said Jesper Bargmann, head of trading for Nordea Bank (Copenhagen: NDA-DKK.CO - news) in Singapore, adding that the tone of the RBA statement also helped the Aussie.

"As the statement was perceived pretty neutral, the market just took back some shorts. The cut was of course widely expected so shouldn't come as too big a surprise," Bargmann said.

The RBA statement announcing the rate cut noted some improvement in the economy while omitting a mention of any need for further action.

"The RBA cut but the tone of the statement is neutral suggesting that further cuts are much less likely," Greg Gibbs, head of Asia Pacific Markets strategy for RBS (LSE: RBS.L - news) said in a note.

"The fact that the RBA sees spare capacity still opens the door for additional cuts, but it appears to have upgraded its growth outlook to around trend ahead of this cut, and by cutting rates further today arguably it has edged the outlook slightly towards above trend growth," Gibbs added.

The euro slipped 0.2 percent to $1.1131 continuing to peel away from a two-month peak of $1.1290 set on Friday.

Sterling held steady at $1.5124, still not far from a one-week low of $1.5091 set on Monday.

Sterling has fallen more than 2 percent from a two-month high set last week, staying on the defensive ahead of a U.K. election on Thursday that is likely to be the closest-fought in recent history.

"Political uncertainty is set to remain high after the election," analysts at JPMorgan (LSE: JPIU.L - news) wrote in a note to clients.

"We believe it could possibly take four weeks to form a government rather than the one week it took in 2010, and view GBP as too expensive for the election and re-enter EUR/GBP longs."

The dollar eased 0.1 percent versus the yen to 120.08 yen .

Japanese financial markets remain shut for the Golden Week holidays and trading there will resume on Thursday. (Additional reporting by Ian Chua and Wayne Cole in Sydney; Editing by Richard Pullin and Simon Cameron-Moore)