Asian markets were mixed on Tuesday with some regional markets rallying after Australia's central bank announced its largest interest rate cut in 16 years.

The Reserve Bank of Australia cut its key rate by one full percentage point to six per cent. Analysts were surprised by the move because they had expected only a half-point cut.

Australian Prime Minister Kevin Rudd said the cut by the RBA was "decisive action" and it would help to bring stability to the country's financial system.

The move prompted Sydney's S&P/ASX-200 index to jump 1.7 per cent to 4,618.7 after it had opened down 3.7 per cent.

Most markets across Asia rallied on the speculation that other central banks would follow suit to combat the global credit crisis. The main indexes in South Korea, Singapore and Taiwan all moved higher after a global sell-off on Monday.

Stock markets in Asia had opened lower before paring some losses.

But in Japan, shares tumbled to the lowest in nearly five years with selling across the board.

The benchmark Nikkei 225 index lost 317.90 points, or 3.03 percent, to close at 10,155.90 on Tuesday, its lowest finish since December 2003.

At the Taiwan Stock Exchange, the price index had dropped 2.5 per cent at the opening, but it recovered after the first hour of trading to 1.24 per cent or 68.41 points, giving it 5,437.29 points.

In South Korea, investors began buying shares after the sharp early drop, with the Korea composite stock price index or Kospi gaining 0.5 per cent in afternoon trading to 1,366.10.

China's benchmark Shanghai composite index fell after markets opened, losing 2.3 per cent.

In New Zealand, the benchmark NZX-50 index was 1.5 per cent lower or 44.19 points at 3,004.19 at the close Tuesday, having recovered somewhat by the announcement in Australia.

Hong Kong's Hang Seng index, which fell five per cent Monday, was closed on Tuesday for a public holiday.

With files from the Associated Press