By Candice Zachariahs Oct. 30 (Bloomberg) -- The Australian and New Zealand dollars rose for a third day against the U.S. currency after central banks in the U.S. and China cut interest rates, boosting investor appetite for higher-yielding assets. The currencies strengthened versus the U.S. dollar as the Federal Reserve lowered its benchmark rate 0.5 percentage point to 1 percent and China, the world's largest consumer of industrial metals, reduced its one-year lending rate for the third time this year. The currencies also gained against the yen as prices surged for commodities the two nations export. ``The significant easing of monetary policy will help the global-growth outlook,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. The Australian dollar's ``positive rebound is helped by a weaker dollar and commodity price gains as a consequence of that.'' Australia's currency rose 4.7 percent to 68.05 U.S. cents as of 12:52 p.m. in Sydney from 64.98 cents late in Asia yesterday. It touched 68.65 cents, the highest level since Oct. 22. The currency advanced 6.1 percent to 66.93 yen. New Zealand's dollar gained 2 percent to 58.89 U.S. cents from 57.75 in Asia yesterday. It bought 57.90 yen from 56.03. The Australian currency climbed after China, the nation's biggest trading partner, yesterday reduced its benchmark one- year lending rate to 6.66 percent from 6.93 percent. The People's Bank of China said in a statement that the deposit rate will drop to 3.60 percent from 3.87 percent. `Inflation Overhang' The Fed reduced its benchmark rate to match a half-century low, seeking to avert the worst U.S. economic downturn in the postwar era. Australia's currency also gained as Ric Battellino, Deputy Governor of the Reserve Bank of Australia, said the economy is set to avoid a recession and an ``inflation overhang'' may limit the central bank's scope to trim borrowing costs. The RBA has ``a big task ahead to bring inflation down and this could limit room for maneuvering on monetary policy,'' Battellino said today in Sydney. Governor Glenn Stevens cut borrowing costs this month by 1 percentage point, the biggest reduction since a recession in 1992. Traders today pared bets the RBA will lower borrowing costs by 0.75 percentage point when it meets Nov. 4, according to a Credit Suisse index based on overnight swaps trading. The chance of a 0.75 percentage-point cut fell to 40 percent from 82 percent yesterday. Next Meeting The RBA will reduce the benchmark rate by half a percentage point to 5.5 percent at its next meeting, according to 14 of 16 economists surveyed by Bloomberg News The Australian and New Zealand dollars began to rally Oct. 28 after the RBA bought its own currency for a third day. The Australian currency dropped as low as 60.10 U.S. cents that day, the weakest level since April 2003. ``The bank has in recent times been intervening,'' said Battellino. ``The markets had become thin and illiquid. We felt that wasn't a good thing.'' The Australian and New Zealand currencies have plunged 16 percent and 13 percent, respectively, versus the U.S. dollar in the past month. The collapse of Lehman Brothers Holdings Inc. on Sept. 15 led to a freeze in lending that spurred investors to dump equities on concerns the world economy is headed for a recession. Australia's currency dropped 21 percent against the yen in the past month and New Zealand's retreated 18 percent. Risk Appetite ``Lots will depend on whether we see continued improvement in credit and equity markets and an improvement in risk appetite,'' said Mike Symonds, head of currency trading at Bank of New Zealand Ltd. in Wellington. ``The global economic environment still looks negative and on that basis you'd expect that at some point this recovery will falter.'' The Reuters/Jefferies CRB Index of 19 raw materials and the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials gained for a third day as investors bet demand for commodities would increase. Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's. Benchmark interest rates are 6 percent in Australia and 6.5 percent in New Zealand, compared with 0.5 percent in Japan and 1 percent in the U.S., attracting investors to the South Pacific nations' assets. Australian government bonds declined. The yield on the 10- year note rose 3 basis points, or 0.03 percentage point, to 5.23 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.232, or A$2.32 per A$1,000 face amount, to 100.144. New Zealand's two-year swap rate, a fixed payment made to receive floating rates, was unchanged at 6.355 percent today. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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