"Clearly what this (rate cut) suggests is that they (RBA) see the economy is weakening, and that they needed to provide support as soon as possible. They key point is that the government is certainly going to be contractionary for growth going forward so the monetary policy players are stepping in," said Matthew Circosta, economist at Moody's Analytics.
(Read More: Australian Exports to China Hit Record In March)
The Australian dollar tumbled against the greenback to hit $1.0190 following the news after trading as high as $1.0255 earlier in the session.
China Closes Up 0.2%
The benchmark stock index pared gains after earlier touching a two-week high at 2,240, weighed down by losses in financial stocks. Haitong Securities and Founder Securities shed 2 percent each.
Meanwhile, the yuan strengthened against the dollar following sharp losses on Monday after the State Council said it will unveil a road map later this year for making the yuan fully convertible under the capital accounts. Such a move would allow the free conversion of yuan for investment purposes.
"The broader capital account plan to be specified will lead to deeper and more attractive capital markets [stocks and bonds], and should also prove a major shot in the arm for regional stock markets," said Uwe Parpart, chief strategist and head of research at Reorient Financial Group in a note.
Gains were also capped ahead of inflation data, expected on Tuesday. The report follows a raft of recent sluggish economic reports, including April's weaker-than-expected manufacturing activity.
The benchmark Kospi dipped below the 1,960 mark after crossing 1,970 in the previous session to touch a one-month high.
Automakers were lower with Hyundai Motor and Kia Motor down 2 percent each after a weaker yen boosted the competitive advantage of their Japanese rivals.
— By CNBC.Com's Nyshka Chandran; follow her on Twitter