* Dollar/yen steady above previous day's 2-week low
* Aussie dollar bolstered by rise in China HSBC flash PMI
* Focus on Chinese money market rates
SINGAPORE/TOKYO, Oct 24 (Reuters) - The dollar held above a two-week low versus the yen on Thursday while the Australian dollar rose as an upbeat reading on China's factory sector eased worries about the outlook for the Chinese economy.
However, market players were keeping an eye on a further jump in China's money market rates.
A spike in Chinese money market rates on Wednesday had dented Chinese equities and knocked risk-sensitive currencies such as the Australian dollar lower, triggering a broad rise in the yen.
On Thursday, China's benchmark seven-day repo rate opened up nearly a full percentage point at 5 percent after China's central bank let cash flow out of the money market for the second straight week.
Still, the latest rise in Chinese money market rates has been relatively tame compared to the sharp rises seen back in June, when China's central bank engineered a credit crunch in the interbank market to warn banks about risky lending policies.
Concerns about the money market moves were also tempered by a preliminary survey which showed China's manufacturing sector expanded at its fastest clip in seven months in October.
"The Chinese numbers this morning have helped turn sentiment around slightly but there are still concerns about money market conditions," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
However, Kotecha said the focus on China's money market could prove temporary.
He added that the dollar was unlikely to fall too much against the yen unless U.S. Treasury yields see another push lower.
The dollar held steady at 97.35 yen, clinging above a two-week low of 97.15 yen set on Wednesday. The dollar is testing support at its 200-day moving average, now at about 97.31 yen.
"A drop below there could open the way for a downside attempt on the back of technical factors," said a trader for a European bank in Tokyo, adding that such a breach could open the way for a test of levels around 96.50 yen and possibly lower.
The Australian dollar rose 0.4 percent to $0.9652, regaining some ground in the wake of its 0.9 percent drop on Wednesday.
The U.S. dollar remains pressured by expectations that the U.S. Federal Reserve will delay tapering its stimulus until next year, after weak U.S. jobs data last week suggested the recovery is not yet on firm footing.
The U.S. 10-year Treasury yield fell to its lowest levels in three months on Wednesday, as investors increased their bets that the Fed will maintain its asset purchases for a longer period.
The dollar index, which tracks the greenback against a basket of currencies, slipped 0.1 percent to 79.204. It had hit an 8-month low of 79.137 on Wednesday.
The euro edged up 0.1 percent to $1.3790, holding right near Wednesday's high of $1.3794, the euro's highest level since November 2011 on trading platform EBS.