The Reserve Bank of Australia has cut its benchmark interest rate by a quarter percentage point to the lowest since 2009 as Europe's debt crisis and slower Chinese growth overshadowed a stronger domestic labor market.

Governor Glenn Stevens and his board lowered the overnight cash rate target to 3.5 per cent, the central bank said in a statement in Sydney today.

The local currency and stocks maintained earlier advances after Stevens's second rate reduction in as many meetings.

Australia's economy is giving mixed signals with unemployment at a one-year low of 4.9 per cent and a A$500 billion ($488 billion) investment pipeline driving growth in some regions, even as export prices have slumped, building approvals dropped and retail sales weakened.

In his statement, Stevens noted the job market's improvement. "Overall labour market conditions firmed a little, notwithstanding job shedding in some industries, and the rate of unemployment remains low," Stevens said. "Nonetheless, both households and businesses continue to exhibit a degree of precautionary behaviour, which may continue in the near term."

Reflecting the weakness in the global economy, Qantas Airways' shares plunged to a record low in Sydney today after saying annual profit may fall as much as 91 per cent because of losses on overseas routes and higher fuel costs.

Australia's largest carrier, which listed in 1995, slumped as much as 18 per cent.

Australia's dollar strengthened for a second day following the cut to the overnight cash-rate target.

Swaps data compiled by Bloomberg had shown a more than 40 per cent chance of a reduction to 3.25 per cent before the Reserve Bank of Australia made its announcement.

Bloomberg