WELLINGTON/SYDNEY: The Australian and New Zealand dollars were held back on Tuesday as a surge in Spanish bond yields jangled investors' nerves, putting the brakes on a corrective bounce in risk assets.

The Australian dollar is down about 0.2 pct at $0.9830, having fallen as low as $0.9802 in early trade. It rallied 1 pct on Monday to a one-week high of $0.9871.

Traders, however, see potential for more short-covering, citing talk of possible government stimulus in China's economy. Move to $0.9970/80, the 20-day MA and 38.2 pct of the $1.0475-$0.9690 fall could still happen this week.

The New Zealand dollar retreats to a low of $0.7578 from its local open around $0.7615. Last at $0.7603 having peaked at $0.7630 on Monday.

Support seen at $0.7550, while the 14-day MA around $0.7640 likely to cap the upside. Analysts say $0.7500 looks to be the trigger for corporate and real money buying of the kiwi.

Investors are wary of pushing the Aussie and the kiwi higher after Spanish benchmark government surged to a euro-era high, raising fears Spain may fall victim to the debt crisis.

The Aussie and kiwi give back some of Monday's gains against the yen and euro.

Having sold off drastically this month, the Antipodeans had rallied over the past three sessions as losses in the two are seen as overdone. But sentiment is brittle, particularly with markets braced for another Australian interest rate cut next week.

Markets have fully priced in the chance of a 25 basis point cut to the 3.75 percent cash rate, and a one-in-four chance of a 50 basis point-cut.

Australian government bond futures jump with the three-year contract up 0.08 points at 97.640, eyeing last week's record 97.700. The 10-year contract is up 0.06 points at 96.935. The 10-year cash yield last stands at 3.132 pct, not far from last week's trough of 3.080 pct -- a low not seen since the 1950s.

New Zealand government bonds catch a bid tone, sending yields 3 basis points lower along the curve.