SYDNEY, March 3 (Reuters) - Australia's property market emerged from a shallow downturn in February as the first rate cut in over four years lifted buyer sentiment, although the still-high borrowing costs and elevated prices are clouding the outlook.

Figures from property consultant CoreLogic showed prices across the nation rose 0.3% in February from January, ending three months of declines or no growth. That helped national prices settle just 0.1% lower from their peak hit in October.

Melbourne and Hobart, where prices fell over the past year, led the gains, with both rising 0.4% in the month.

Tim Lawless, CoreLogic's research director, said the bounce in prices has more to do with an uptick in sentiment than any immediate improvement in borrowing capacity as rates were only lowered by a quarter-point.

"The rate-cutting cycle is very fresh and is likely to be drawn out... interest rate settings are likely to remain in restrictive territory for some time yet," said Lawless.

"Until home loan serviceability improves more substantially, it’s hard to see housing markets moving into a material growth trend."

The Reserve Bank of Australia has cautioned that any further easing will be gradual, with market pricing suggesting just two more rate cuts to 3.6% by the end of the year.

Still, last month's rate cut injected some confidence in an anemic market which had finally slowed down after a year of hitting record prices, helped by elevated levels of immigration and limited housing supply.

Lawless expects the markets where housing values have experienced bigger falls - in Melbourne, Canberra and Hobart - to rebound more strongly as they have become more affordable.

Auction clearance rates also rose back to around long-run average levels across the major auction markets, he noted.

(Reporting by Stella QiuEditing by Shri Navaratnam)

((yifan.qiu@thomsonreuters.com; +61 0 427901124;))