* Yen hits 10-mth low vs euro, 6-wk trough vs dollar
* Dlr/yen rises above 200-day MA, may target Y84.50
* Policy divergence, widening differentials push yen lower
(Adds quote, updates prices)
By Anirban Nag
LONDON, April 1 (Reuters) - The yen fell on Friday to a 10-month low against the euro and below its 200-day moving average versus the dollar, with the greenback likely to push higher if a key U.S. jobs report beats expectations.
Speculation grew for a strong reading of non-farm payrolls at 1230 GMT, which would reinforce perceptions an improving U.S. economy would bolster the argument for tighter monetary policy and further widen dollar/yen yield differentials.
That would enhance the yen's appeal as a funding currency of choice amongst investors like hedge funds and model funds, which are increasingly looking to sell the yen and buy high-yielding currencies. These investors are also going long on the dollar/yen pair ahead of the U.S. jobs numbers.
Analysts are forecasting the U.S. economy will add 190,000 jobs in March. The data comes a day after hawkish comments from a U.S. Federal Reserve official gave traders more reason to think the Fed will raise rates before the Bank of Japan.
The BOJ is widely expected to lag behind the Fed and the European Central Bank in raising interest rates, especially in the wake of the March 11 earthquake and tsunami that devastated Japan's northeast.
"A strong payrolls number would be reflected in the dollar/yen and it could rise to 84.50 in the short term," said Simon Derrick, head of currency research at Bank of New York Mellon. "We expect to see prolonged yen weakness due to loose monetary and fiscal policy in Japan."
The dollar was up 0.6 percent at 83.65 yen. It touched a six-week high of 83.748 yen on trading platform EBS earlier, and the next major peak on daily charts is its mid-February high of 83.98 yen. Against a basket of currencies, the dollar was up 0.3 percent at 76.115.
The dollar rose above its 200-day moving average against the yen at 83.60 yen for the first time since June, suggesting upside potential for the greenback.
DOLLAR HIGHER ON HAWKISH COMMENTS
The dollar was supported after the Wall Street Journal reported that Minneapolis Federal Reserve President Narayana Kocherlakota signaled the Fed could raise interest rates by 75 basis points by the end of the year.
A series of hawkish comments by Fed officials recently has helped drive U.S. Treasury yields higher this week and caused the dollar's yield advantage over the yen to widen. President of the New York Fed, William Dudley, and Dallas Fed chief Richard Fisher were due to speak later on Friday.
Analysts said improving risk appetite was drawing more investors towards yen-funded carry trades. The yen fell broadly on the crosses, hitting an 11-month low against the Australian dollar and its lowest in more than 10 months against the euro.
The single European currency rose as high as 118.675 yen on trading platform EBS, the euro's highest against the yen since mid-May 2010. The euro last stood at 118.35 yen, up 0.6 percent on the day.
The euro was slightly lower against the dollar at $1.4157, barely reacting to an extraordinary issue of 2012 bonds by Portugal. Talk of sovereign demand at $1.4140-50 and at $1.4125-30 put a base under the single currency.
Market participants said options-related barriers around $1.4250 would cap any upside in the single currency for the moment. A break above that level would open the way to $1.4293, a peak hit in November.
Portugal sold 1.645 billion euros of one-year debt at a high price after yields soared this week on the back of political uncertainty and rising expectations the country will need financial aid.
"The euro has been incredibly resilient to the sovereign debt woes," said Kit Juckes, currency strategist at Societe Generale.
The euro's resilience is partly due to expectations the ECB will raise rates next week. Markets are pricing in at least three rate hikes this year. But investors are wary that a sustained rise in rates could push up funding costs for peripheral euro zone countries and add to their debt woes.
"So the ECB's path towards normalising rates will depend upon the reaction from the bond markets," added Juckes. (Additional reporting by Naomi Tajitsu; Editing by Susan Fenton/Toby Chopra)