FOREX-Rate differentials drive yen lower, Aussie at 29-year peak

* Yen hits 10-month low vs euro, near 3-week trough vs dlr

* Yield differentials, lack of repatriation flows weigh on yen

* Australian dollar hits 29-year high vs dollar

By Natsuko Waki

TOKYO, March 30 (Reuters) - The yen fell broadly on Wednesday, hitting 10-month lows against the euro and touching its lowest level in nearly three weeks versus the dollar as interest rate differentials widened in favour of U.S. and European currencies.

Hawkish comments by Federal Reserve and European Central Bank officials contrasted with the stance taken by the Bank of Japan, which is set to leave interest rates near zero for some time to support the world's third-largest economy as it recovers from the effects of the March 11 earthquake.

The absence of huge repatriation flows by Japanese investors in the wake of the quake has shifted the focus back to economic fundamentals, which are reinforcing the yen's status as a funding currency for buying higher-yielding assets.

"We've had comments from the Fed and a shift in sentiment towards the U.S. policy from a rate perspective that has really pushed U.S.-Japan yield differentials, driving the dollar higher," said Mitul Kotecha, head of global FX strategy at Credit Agricole in Hong Kong.

"The fiscal year-end isn't a story any more. The market is coming round to the view we're not going to see the scale of repatriation once expected."

The dollar rose 0.4 percent on the day to a three-week peak of 82.83 , having breached its 50-day moving average of 82.10.

The move gathered pace when Dallas Fed President Richard Fisher told Fox Business he would vote against any further monetary easing after the current $600 billion bond buying programme ends in June. [ID:nN2961086]

It is now above a 82.00 high hit on March 18, when Japanese authorities and other G7 central banks worked in concert to stop runaway yen gains. This level would now act as a support.

A trader for a Japanese brokerage said yen-buying by Japanese exporters may temper gains in dollar/yen during Tokyo hours, and levels around 82.90 may become heavy.

He said there tends to be a dollar shortage before the fiscal year-end, which is on Thursday, that may push the dollar above 83.

Some analysts also said there is a risk that Japan's trade deficit could shrink, reducing natural upward pressure on the yen, as exports are likely to fall in the aftermath of the quake and energy and resource-related imports could rise.

The dollar is up more than 8 percent against the yen since hitting a record low of 76.25 yen on March 17.

YIELD BACK IN FOCUS

Wednesday's move came as the two-year U.S. Treasury yield climbed to near six-week highs around 0.83 percent after St. Louis Fed chief James Bullard urged the U.S. central bank to begin reversing its campaign of monetary easing.

Bullard, who does not have a vote on Fed policy this year, said the Fed could trim its $600 billion bond-buying programme by $100 billion. [ID:nPRC003447]

"Non-voting, regional Fed presidents might rarely have been so important ... so long as they say what the market wants to hear," David Watt, a strategist at RBC, wrote in a client note.

The euro briefly rose to 116.62 yen after breaking through major resistance around 115.50/60, a level that has capped the pair since May 2010.

The single currency has been driven by expectations that the ECB, worried about inflation, may raise rates in April.

That view was supported by ECB Governing Council member Jozef Makuch, who said on Tuesday the ECB was "highly" likely to raise its main interest rate from the current record low level of 1.0 percent next month. [ID:nFLATEE7LX]

ECB Executive Board member Juergen Stark was also quoted as saying the ECB should not delay raising interest rates. [ID:nFLATEE7LY]

Wednesday's data is expected to show euro zone inflation above the ECB's target of "close to but below" 2 percent.

Three-month euro interbank lending rates rose as high as 1.219 percent , the highest since June 2009.

The euro was down a quarter percent at $1.4076 while the dollar index rose 0.1 percent against a basket of major currencies, although it stayed well off last week's 15-month lows of 75.340.

Elsewhere, the Australian dollar rose to a fresh 29-year peak of $1.0318 . It hit highs not seen since early 1982, when it was a managed currency.

Traders cited a confluence of supportive factors including persistent talk of M&A flows, solid demand for higher-yielding currencies and lofty commodity prices.

Against the yen, it popped above 85 for the first time since May 2010. (Additional reporting by Ian Chua and Masayuki Kitano; Editing by Michael Watson; Editing by Michael Watson)