* Yen broadly weaker, at fresh 10-month low vs euro
* G3 rate differentials main driver
* Irish nervousness limiting euro's gains vs dollar
By Natsuko Waki
TOKYO, March 31 (Reuters) - The yen slipped across the board on Thursday, hitting fresh 10-month lows versus the euro and holding near a three-week trough against the dollar as expectations grew that Japan will lag euro zone and U.S. Central banks in raising interest rates.
Strong U.S. private jobs data and hawkish comments by euro zone and U.S. central bank officials reinforced the view that the global economic recovery is on track, leading to stronger risk-taking by investors as the volatile first quarter ends.
Anticipation that Japan would buck the global tightening cycle to leave yen rates low to support its quake-hit economy is encouraging players to sell the currency to fund higher-yielding investments, in a revival of the carry trade that flourished before the credit crisis began in 2007.
"Interest rate differentials are the strongest driver of the market. The Fed is starting to communicate to the market that QE2 is ending in June. The focus is now moving to the exit of the strategy," said Teppei Ino, an analyst at Bank of Tokyo Mitsubishi UFJ.
"Looking at flows, players are buying fresh dollar/yen positions instead of covering shorts. Weakness of the yen against the crosses may be reflecting moves by Japanese retail investors."
The dollar was up 0.3 percent on the day at 83.12 yen , up 9 percent from its record low of 76.25 yen set on March 17 before G7 central banks intervened in a rare coordinated move to stem the yen's rise.
The dollar's immediate resistance is seen at 83.30, the March 11 high, before 83.99-84.51 November-February range highs.
Top Federal Reserve officials said on Wednesday the central bank needs to exit its $600 billion bond buying plan, adding to expectations that it is nearing the end of its current round of stimulus. [ID:nN30180403]
The spread between the two-year U.S. and Japanese government bond yields widened to 62 basis points this week, compared with just 33 two weeks ago.
The euro rose as high as 117.46 yen , its highest since May 2010, bringing its gains this year to 8 percent.
The euro was steady at $1.4123 , facing resistance at $1.422 and $1.4248. BNP Paribas is recommending long euro positions from $1.4120 to target $1.45 with a stop at $1.402.
In a sign that investors are increasingly confident about taking risks, the Volatility Index or VIX -- Wall Street's favorite gauge of investor fear -- fell to 17.71, its lowest level since Feb. 18.
EURO'S CHALLENGES
European Central Bank executive board member Lorenzo Bini Smaghi said on Thursday the central bank's policy is to gradually raise interest rates, while another board member, Juergen Stark, said rates are exceptionally low, cementing expectations for an April interest rate hike .
"The barrage of ECB commentary shows a CB wanting to keep liquidity operations separate from rate policy; the agenda has already moved on to how hawkish Mr. (ECB President Jean-Claude) Trichet will sound at the April 7 press conference," BNP Paribas said in a note to clients.
Three-month euro interbank lending rates rose as high as 1.213 percent , a level not seen since June 2009.
However, Credit Agricole said the euro may struggle to advance further against the dollar given that the euro zone rate outlook is largely priced in.
The bank said correlations between euro/dollar and three-month eurozone-U.S. interest rates spread stand at 0.95 -- a number that shows an extremely close relationship.
Investors are also nervous about the risk that the euro zone debt crisis may spread to other peripheral countries.
Ireland will announce the results of stress tests later on Thursday that are expected to signal the effective nationalisation of the entire financial system. [ID:nLDE72T086] (Editing by Michael Watson)