Australia's central bank cut interest rates by 25 basis points Tuesday to 3.50 percent amid fears over weakness in Europe and easing growth in key trade partner China.
The cut adds to the 50 basis points the Reserve Bank of Australia (RBA) slashed from interest rates last month, bringing them to a level not seen in the booming mining economy since November 2009.
"With modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy," Reserve Bank governor Glenn Stevens said.
The news saw the Australian dollar immediately rise from 97.26 US cents to 97.82 US cents, and it remained at about 97.86 US cents late Tuesday.
Stevens said while growth in the world economy picked up in early 2012, more recent indicators suggested further weakening in Europe and some slowing easing in growth in China.
"Financial market sentiment has deteriorated over the past month," he said, noting that the RBA had previously said that Europe would remain a potential source of adverse shocks.
"Europe's economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks."
He said while conditions in Asia had largely recovered from the effects of last year's natural disasters, such as the Japanese tsunami, "the ongoing trend is unclear and could be dampened by slower Chinese growth".
In Australia, Stevens said while indicators suggested modest growth in early 2012, both households and businesses appeared to be taking precautions.
Australia's Treasurer Wayne Swan, who oversaw a massive stimulus package during the global financial crisis which the government believes helped the economy avoid recession, welcomed the rate cut.
He said the independent RBA still had "further room to move" to stimulate the economy which is facing a subdued housing sector and inflation set to hold at the low end of the 2.0 to 3.0 percent target band.
"The Australian economy is strong compared to the rest of the world," said Swan, adding that despite events unfolding overseas, Australians could have confidence in their economy.
"We are not immune from these events," he told reporters.
"It is true that Australians are saving more, but it also true that they haven't stopped entirely putting their hands in their pocket."
Analysts said the RBA's decision reflected concerns that external demand could hamper Australia's economy, in which sectors outside mining such as manufacturing and tourism are being buffeted by a strong Aussie dollar.
"The RBA is clearly concerned about the 'two speed' nature of Australia's economy, which has come to rely heavily on the mining sector for growth," said Daniel Martin, an economist with Capital Economics.
"The central bank's cumulative 125 basis points of rate cuts since November will give some support to manufacturers and other non-mining parts of the local economy, but the RBA is likely to act again before the end of the year."