* Yen, dollar slip as risk tolerance up, Aussie gains
* Market watching ECB for signs of unconventional easing
* G20 draft communique: to regulate big hedge funds
By Charlotte Cooper
TOKYO, April 2 (Reuters) - The yen and dollar fell on Thursday, losing ground to higher-yielding currencies as stock markets rose on hopes a deep recession is moderating.
Asian stocks surged on Thursday, with Tokyo's Nikkei average rallying more than 4 percent, after U.S. factory and home sales data released the previous day spurred optimism about the economy, even though other numbers showed job losses mounting.
"Market participants are becoming more convinced of a global recovery and that is causing risk appetite to increase," said Toru Umemoto, chief FX strategist Japan at Barclays Capital.
But ranges were tight as the currency market awaited a European Central Bank policy decision later in the day.
The market expects the ECB to cut interest rates to a record low of 1 percent, and the focus was on what the central bank might say on unconventional easing.
Participants are keen to see if the ECB will follow the U.S., British, and Japanese central banks in buying corporate or government debt to boost money supply in a policy known as quantitative easing, though many doubt it is ready take that step.
The decision is due at 1145 GMT and ECB President Jean-Claude Trichet will answer questions at 1230 GMT.
"If Trichet mentions any untraditional measures this could be a negative surprise for the euro," Umemoto said.
The dollar plunged in March when the Federal Reserve announced it would buy large amounts of government debt, with investors fearing this would flood the market with dollars.
Alan Ruskin, a strategist at RBS, wrote in a research note it was possible Trichet would duck questions on quantitative easing but any sign of commitment to such a step would hit the euro.
"At a minimum, it should result in a full unwind of the U.S. QE led euro/dollar spike and a move back down to $1.3000, taking out the recent 1.3110 low," Ruskin wrote.
The euro edged up 0.1 percent to $1.3267, although it was still within sight of Monday's two-week low near $1.3100 and chart support at its 100-day moving average of $1.3137.
The euro gained 0.5 percent to 131.09 yen after losing ground against the Japanese currency in the past two sessions following its failure to break through 132.00.
The dollar rose 0.3 percent to 98.83 yen, eyeing a March peak of 99.69.
The dollar index, a gauge of the greenback's strength against a basket of key currencies, dropped 0.1 percent to 85.310.
RISK TOLERANCE
The Australian dollar picked up pace as a strong show by Asian stock markets and a gain of 1.5 percent in S&P futures indicated investors were tolerating more risk.
The Aussie tended to fall as risk aversion rose at the height of the global financial crisis while the yen gained as investors unwound interest rate plays and sought it as a safer haven.
The Australian dollar rose 0.7 percent to $0.7034 on a bigger-than-expected trade surplus and gained 0.9 percent to 69.48 yen.
Investors were also keeping a close eye on possible steps for the global economy from a Group of 20 meeting on Thursday.
Contents of a draft communique from the Group of 20 leaders of developed and developing nations meeting in London held few surprises for the market.
The draft made no specific commitment to extra fiscal stimulus but said regulation would extend to systemically important hedge funds.
Market volatility could decrease as the plan aims to regulate speculators who wield large positions, said Masaki Fukui, a senior market economist at Mizuho Corporate Bank.
"But there is still room for more discussion as excessive regulation would cancel out positive aspects of the market economy," Fukui said.
G20 leaders were also set to pledge to cooperate on economic policy, boost funds for the Int: charlotte.cooper.reuters.com@reuters.net; Email: charlotte.cooper@thomsonreuters.com; +81 3 6441 1870))