* Yen down sharply as Japan fiscal year comes to an end
* Euro gains vs dollar; European stocks rise 2 pct
* Focus on G20, ECB meeting; euro gains seen limited
(recasts, changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, March 31 (Reuters) - The yen fell broadly on Tuesday
as the Japanese fiscal year came to an end, while the dollar
lost ground against the euro with quarter-end flows overriding
fundamentals even as markets geared up for a G20 meeting.
Market pessimism seemed to ease off slightly, with European
stock markets rising roughly 2 percent <> to claw back
some of Monday's hefty losses sparked by fears of bankruptcy for
U.S. automakers General Motors <GM.N> and Chrysler.
This also weakened demand for the dollar and the yen, which
had both gained previously on extreme risk aversion.
The euro gained in counter-intuitive fashion after Standard
and Poors downgraded Ireland and Hungary's credit ratings on
Monday, with dollar selling for month-end and quarter end
dominated activity.
Data earlier showed euro area inflation had fallen to a
record low 0.6 percent year on year in March [] and
a bigger-than-expected rise in the German jobless total in
February [].
"I would have thought that the news from Ireland and Hungary
on Monday would be negative for the euro, but traders are
talking about a lot of dollar selling for the end of the quarter
so lets see what happens tomorrow," said Chris Turner, head of
FX research at ING in London.
By 1230 GMT, the euro was up 2.1 percent at 131.11 yen
<EURJPY=>, while the dollar rose 1.2 percent to 98.45 yen, with
technical strategists saying the pair was well placed to top the
100 yen mark.
The greenback is on course for a gain of more than 8 percent
against the yen for the first quarter of 2009, its biggest
quarterly rise since the end of 2001, according to Reuters data.
"The yen is likely to remain under pressure this week, with
speculation that Japanese investors are ready to start moving
funds overseas again," said Lee Ferridge, FX strategist at State
Street in London.
Outside of yen selling, the dollar fell 0.7 percent versus a
basket of major currencies to 85.147 <.DXY>, while the euro was
up 0.8 percent at $1.3323 <EUR=>.
Currencies perceived to be higher risk also gained, with the
Australian dollar up 1.8 percent to $0.6930 <AUD=>.
G20 EYED, DLR TALK RISES
Focus was switching to the summit of Group of 20 leaders in
London this week, with investors hoping that they may reach
agreement on measures to help revive the global economy.
Japan announced plans for a third stimulus plan for the
world's second biggest economy, two days before the G20 meeting
[].
Questions around the dollar's status as the globe's main
unit have also gained traction since China suggested the wider
use of Special Drawing Rights (SDR) created by the International
Monetary Fund as an international reserve asset.
But World Bank President Robert Zoellick said the dollar
will remain the world's dominant reserve currency and a strong
U.S. currency is critical to pull the world out of crisis,
He said it would take more than a Group of 20 summit to
establish a new reserve currency, which requires functioning
financial markets [].
ECB EYED
Later this week, the ECB is seen cutting rates by 50 basis
points to 1.0 percent, with a possibility it will follow other
major central banks and adopt some form of unconventional
measures to boost money supply. See [].
Meanwhile, the S&P sovereign ratings downgrades on Ireland
and Hungary renewed concerns both about the financial health of
countries on the euro zone's periphery and about western
European banks' hefty exposure to eastern Europe. See
[] and [].
"The inflation data underlines that the euro zone is as much
a victim of the current crisis as the U.S. and the UK and the
European Central Bank will be forced to adopt more aggressive
measures," Tullet Prebon G7 market economist Lena Komileva said.
(Additional reporting by Jessica Mortimer in London)
(Reporting by Veronica Brown; Editing by Ron Askew)
