* Euro jumps, pushing dollar index to 8-1/2 month low
* Traders cite Asian euro buying; US QE worries dent dollar
* Dollar cuts earlier gains vs yen triggered by BOJ decision
* Aussie slides after RBA surprises by not raising rates
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By Jessica Mortimer
LONDON, Oct 5 (Reuters) - The euro jumped against the dollar on Tuesday on reported Asian buying, pushing the greenback to an 8-1/2 month trade-weighted low, while the yen trimmed earlier falls against the U.S. currency.
The yen fell after the Bank of Japan cut its rate target to 0-0.1 percent from 0.1 percent and said it would create a pool of funds to buy assets in the face of evidence yen strength was hurting Japan's economy. [ID:nTOE69305D]
Analysts said the BOJ's moves were not sufficient to halt the downward trend in dollar/yen, however, with the U.S. currency pressured by falling U.S. bond yields and expectations the Federal Reserve will implement fresh quantitative easing.
The yen's falls stalled just ahead of 84.00 yen per dollar, and it turned flat on the day in tandem with gains in euro/dollar, leaving intact expectations that more Japanese intervention may be needed to curb yen gains versus the dollar.
"The yen falls after the BOJ decision looked unlikely to last. When rates were so close to zero anyway a further rate cut will make very little difference," said Elsa Lignos, currency strategist at RBC.
At 0927 GMT, the euro was up 0.7 percent at $1.3771, off a high of $1.3794. Resistance was expected at $1.3809, a 6-1/2- month high, with traders citing options barriers at $1.3825.
Traders reported Asian central bank buying of euros against the dollar, while a U.S. bank was also seen buying, driving it up sharply from below $1.3700.
Asian central banks have been diversifying their currency reserves away from the dollar, particularly towards the euro.
RBC's Lignos said the euro bounced above a trend support line, currently around $1.3650, which runs back to where the recent rally began in mid-September.
"If some people were thinking of changing their bullish euro view, this latest move may have changed their mind."
The euro's sharp gains pushed the dollar index as low as 77.975 .DXY, its weakest since late January, while the dollar hit a 2-1/2 year low versus the Swiss franc CHF=.
Talk of the United States adopting more QE grew after Chairman Ben Bernanke said on Monday more Fed asset purchases could further ease financial conditions. [ID:nN04133934] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on trade-weighted FX exchange rates
Analysts said the fact the European Central Bank has not hinted at policy easing measures was seen as positive for the euro, which shrugged off a Moody's warning it may cut Ireland's debt ratings. [ID:nLDE6940AV]
Against the yen, the dollar was steady at 83.38 yen JPY=, having climbed as high as 83.99 yen in the wake of the BOJ decision. The yen fell against other currencies, however, with the euro EURJPY=R up 0.8 percent at 114.92 yen.
"The BOJ's move will cap yen appreciation, but they will need to come in and intervene if dollar/yen is to go beyond 85/86 -- or would need to see a trough in U.S. rates and yields which is the main driver of dollar/yen downside," said Societe Generale currency strategist Kit Juckes.
The dollar hit a 15-year low of 82.87 yen last month, prompting Japanese authorities to intervene to stem yen gains for the first time in more than six years.
The higher-yielding Australian dollar fell 0.8 percent to $0.9600, slipping from a two-year high of $0.9751 after the central bank unexpectedly left rates on hold at 4.50 percent.
The decision surprised the market, which had priced in a 74 percent chance CSRBA=CSAU of a hike, although analysts said Australia's hefty yield advantage would support the Aussie.
(Graphic by Scott Barber)