* Yen falls to 10-month low versus euro at 117.54
* Carry trade revival keeps yen under broad selling pressure
* Euro firms versus dollar; Irish bank stress tests due
* Quarter-end, fiscal year-end flows to make trade volatile
(Changes dateline, adds quotes, detail, previous TOKYO)
By Neal Armstrong
LONDON, March 31 (Reuters) - The yen hit a fresh 10-month low versus the euro on Thursday and touched a three-week trough against the dollar as expectations mounted that Japan would lag the euro zone and U.S. central banks in raising interest rates.
Traders said significant quarter-end and fiscal year-end flows were likely to make trade in the major currency pairs volatile on the day.
European Central Bank Executive Board member Lorenzo Bini Smaghi on Wednesday implied that the central bank's policy is to gradually raise interest rates, with markets expecting the tightening cycle to begin in April.
Two U.S. Federal Reserve Bank officials on Wednesday said the Fed needs to exit its unprecedented monetary stimulus, suggesting the debate over future policy is heating up as the U.S. central bank nears the end of its current round of stimulus.
Anticipation that Japan would buck the global tightening cycle and leave interest rates low to support its quake-hit economy is encouraging players to sell the yen to fund higher-yielding investments, in a revival of the carry trade that flourished before the credit crisis began in 2007.
"Rate differentials are playing a big role, especially as there is no probability for the BOJ to become more hawkish, even in the medium- to long-term." said Manuel Oliveri, currency strategist at UBS in Zurich.
"There is scope for rate expectations to stay supported in the euro zone. German demand and the service sector is strong so price rises are likely to become domestically driven, not just commodity driven,"
Euro zone flash inflation data for March is due for release at 0900 GMT, with economists in a Reuters poll forecasting a 2.3 percent rise in prices on the month.
The euro rose to 117.54 yen in Asian trade, its highest since May 2010, up around 0.4 percent on the day.
"I see little resistance until 119.90, which was a pivotal area back in May 2010," said a London-based spot trader.
The dollar rose to a three-week high of 83.21 yen before running into selling by Japanese banks and foreign players along with some fiscal year-end yen demand from Japanese exporters. Strong offers were seen from 83.30 to 83.50, with more around 84.00.
The dollar was up around 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. It was last at 82.85, unchanged on the day.
Jefferies analyst Naomi Fink said the start of the new fiscal year could bring more yen selling although it was unlikely to fall in a straight line.
"I see a trend of greater tolerance. Households and companies have a lot of cash and they will need to invest in overseas ventures. Overseas investments in the new financial year should weaken the yen a bit more," she said.
STRESS TESTS
The euro rose 0.4 percent to $1.4180, still within its March range, with traders saying a break of option barriers at $1.4250 would be needed for fresh upside momentum.
BNP Paribas is recommending buying euros from $1.4120 to target $1.45 with a stop at $1.4020.
Ireland later on Thursday announces the results of stress tests that are expected to signal the effective nationalisation of the entire financial system.
Tests are expected to reveal an additional 20-25 billion euro hole in Irish banks' capital and will be followed by a radical restructuring of the sector, the Irish Independent newspaper reported.
"Ireland is not a big risk to the euro as there is no systemic risk thanks to the euro zone rescue fund. Confidence is being driven by the larger euro zone countries," said Oliveri at UBS.
The Australian dollar hit a fresh 29-year high of $1.0348 after favourable retail sales and credit growth data.
The dollar index fell around 0.3 percent to 75.849.
(Additional reporting by Natsuko Waki, editing by Stephen Nisbet)