By Gyles Beckford and Cecile Lefort

SYDNEY, Aug 1 (Reuters) - The Australian dollar was nursing hefty losses on Thursday to hover near three-year lows as markets priced in ever lower interest rates in the months ahead, with a better-than-expected Chinese manufacturing report offering only minor relief.

The Aussie skidded all the way to $0.8910 in early trade, its lowest since 2010, after selling against the yen pierced major support around 88 yen to reach its weakest level this year.

Later, the Aussie pared losses to trade at $0.8966, having found support in a better-than-expected reading of China's official PMI.

The Australian dollar is very sensitive to news of out China, the country's key export market. The positive manufacturing reading helped ease some concerns about a hard landing for the Chinese economy.

'It bounced after China, but it still remains in the dog house,' said Greg Gibbs, a strategist at Royal Bank of Scotland in Singapore.

The Aussie has lost more than 3 percent this week following dovish comments from Reserve Bank of Australia (RBA) Governor Glenn Stevens on Tuesday.

'The market remains skeptical about China and Australia's economy,' Gibbs said, forecasting further weakness in the Asian giant. He sees the Aussie heading to 87 cents in the short-term and 83 cents by the end of the year.

The Aussie struck fresh three-year lows against the euro, pound and Canadian dollar and skidded to NZ$1.1196 against its kiwi cousin, a bottom not seen since October 2008.

Swap rates now imply a 97 percent chance that rates will fall to a record low of 2.50 percent at the RBA's policy meeting on Aug. 6. All 22 economists polled by Reuters following Stevens' speech expect the RBA to ease next week.

Markets have gone further and narrowed the odds for a second easing before year-end, seeing interbank rates at 2.22 percent in December.

The premium offered by Australian debt also shrank, with the gap between 10-year Australian and U.S. yields down at 108 basis points, its lowest since 2008.

Bond futures were firmer, with the three-year contract up 4 ticks at 97.460, having touched a six-week high of 97.470. The 10-year contract gained 5 ticks to 96.320.

Across the Tasman sea, the New Zealand dollar eased to $0.7957 from around $0.7985 in late New York trade, weighed by Aussie weakness.

Near-term support for the kiwi is seen at the 20-day moving average at $0.7908, with $0.8000 capping the topside.

New Zealand government bonds were flat along the curve.

(Reporting by Cecile Lefort; Editing by Shri Navaratnam) Keywords: MARKETS AUSTRALIA/FOREX

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