Aussie dlr off lows after retail data disappointment

* Aussie recover from lows, helped by short covering

* Weak Sept. retail sales dims chance of Dec rate rise

* Bond futures ease, tracking losses in Treasuries

SYDNEY, Nov 4 (Reuters) - The Australian dollar recovered from lows on Wednesday as some investors hurried to buy after a sharp drop in the wake of disappointing retail sales data.

Despite Wednesday's weak retail sales report dimming the chance of an interest rate rise in December, traders said demand for the Aussie stayed firm.

The Aussie rebounded to $0.9022, from a low of $0.8980 after data showed retail sales performance eased 0.2 percent. That confounded forecasts for a 0.4 percent gain.

The Aussie was little changed on the yen at 81.49.

The currency had skidded to $0.8980 from $0.9034 in under two minutes on Wednesday after the disappointing retail report. One trader said algorithmic funds outside Australia led the selling.

But the sharp drop attracted buyers between $0.8950-70, prompting the Aussie to rebound. That in turn forced short sellers to ditch their positions, amplifying the swift recovery.

Analysts said the Aussie owed much of its buoyancy to its yield allure. Even without a rate rise in December, Australian rates are well above most developed economies at 3.50 percent.

This is especially so when Australian rates are compared to those in the United States, where rates are at zero percent. The Federal Reserve is expected to reaffirm on Wednesday its super-easy policy to support the struggling U.S. economy.

"The Fed is not ready to consider withdrawing the punchbowl just yet, which would be good news for risky assets in general," said David Forrester, an analyst at Barclays Capital.

The Aussie is seen to be a riskier investment because of its high volatility.

The Reserve Bank of Australia (RBA) raised rates by an expected 25 basis points to 3.50 percent on Tuesday, but sounded less hawkish than some investors had bet on.

A handful of analysts now say the RBA may decide against raising rates next month.

"The RBA will be giving serious thought to pausing on rate hikes at their December meeting," said Alex Joiner, an analyst at ANZ.

December interbank futures <0#YIB:> ended down 0.005 points at 96.365, giving an implied rate of 3.64 percent. That meant investors are pricing in a 56 percent chance of a rate hike, down from 64 percent before the data.

Aussie bond futures stayed down, mirroring declines in U.S. Treasuries. Three-year bond futures eased 0.02 points to 94.98, and the 10-year contract lost 0.07 points to 94.435. ----------------(Snapshot at 4:00 p.m./0500 GMT)---------------- FUTURES CASH YIELD 90-DAY BILL 90-DAY BILL (DEC) 95.91 (-0.02) AUD3MOIS= 3.60 (3.60) 3-YR BOND (DEC) 94.98 (-0.02) AU3YT=RR 4.91 (4.87) 10-YR BOND (DEC) 94.435(-0.05) AU10YT=RR 5.62 (5.52) AUD/USD 0.9022 (0.9007) US10YT=RR 3.47 (3.42) --------------------------------------------------------------- AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD USD +364 (+362) +215 (+210) *FUTURES +0.546(+0.485) CAD +316 (+313) +219 (+208) *AUD 2-YR/10-YR SPREAD NZD +28 (+24) -10 (-20) *CASH +106 (+98) --------------------------------------------------------------- (Reporting by Koh Gui Qing)