* PBOC sets yuan mid-point at weakest levels since Oct 2012
* Dollar refreshes 2-month highs vs yen
* Lower U.S. yields keep dollar's upside capped
* Markets ponder likelihood of Fed hike in wake of China move
By Lisa Twaronite
TOKYO, Aug 12 (Reuters) - The Australian dollar tumbled to its lowest level since 2009 on Wednesday after the Chinese central bank set the midpoint for its yuan at the weakest level since October 2012.
The People's Bank of China (PBOC) set the midpoint rate at 6.3306 per dollar prior to market open, weaker than the previous fix of 6.2298 and 75 points weaker than previous day's market close of 6.3231.
Foreign exchange traders in Shanghai said Chinese state-owned banks were selling dollars on behalf of the central bank, which was intervening to keep the yuan around 6.43 against the dollar.
The latest PBOC moves came after it surprised markets on Tuesday by aggressively lowering its guidance rate, pushing the yuan down nearly 2 percent.
The Aussie, widely considered a proxy for China plays, was last down 0.7 percent at $0.7251, after plunging as low as $0.7217.
"Focusing on the Aussie dollar, it's dropping, on concern about what China's official attitude is," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
Chinese policymakers "didn't do such a devaluation even during the Lehman Crisis [in 2008], but they're doing it now, which means they may have strong concerns about their growth and economy," he said.
Chinese economic data released late in the Asian session underscored Beijing's need to prop up its economy. China's factory output rose 6.0 percent in July from a year earlier, falling short of forecasts. Fixed-asset investment and retail sales figures also missed expectations.
China's devaluation of the yuan should not be seen as it embarking on a devaluation trend, the central bank's chief economist, Ma Jun, wrote in the official People's Daily on Wednesday.
The International Monetary Fund said on Wednesday that China's move to change the mechanism for setting its daily yuan guidance "appears a welcome step" as it should allow market forces to have a greater role in determining the exchange rate.
The United States on Tuesday warned China that any wavering in its commitment to a more market-determined exchange rate would be "troubling," though a U.S. Treasury official said it was unclear if this yuan devaluation marked such a step.
A key question for investors is how the People's Bank of China's unexpected move might affect the timing of the U.S. Federal Reserve's long-awaited increase in interest rates, which many believe could still come as early as next month, given improving U.S. economic data.
"While the move by the PBOC highlights the risks to the U.S. outlook, we retain our call for a September hike, but believe the probability has fallen somewhat, as the move may raise FOMC concerns about global growth and inflation pressures," strategists at Barclays said.
U.S. data published on Tuesday showed nonfarm productivity rebounded in the second quarter, but a weak underlying trend suggested inflation could pick up more quickly than economists thought.
U.S. Treasury yields dropped to their lowest levels since late April as uneasiness about China measures curbed investor appetite for risk and kept the dollar's gains in check. The benchmark 10-year note yield slipped to 2.080 percent in Asian trading, compared to its U.S. close of 2.139 percent.
Against the yen, the dollar was slightly down at 125.07 after rising as high as 125.28 yen earlier, its highest since early June.
The euro gained 0.2 percent against the Japanese currency to 138.44 yen, after it earlier rose as high as 138.69 yen, its loftiest peak since June 25.
The euro added about 0.3 percent to $1.1073, after earlier coming within a few ticks of a nearly two-week high of $1.1089 touched on Tuesday. (Reporting by Lisa Twaronite; Editing by Eric Meijer)