* Dollar at near 4-mth high vs yen, vaults 99 mark
* Dlr index hits fresh 3-year high, euro at 3-mth low
* Australian economy contracts for first time in 8 years
* Yen sold broadly as long-yen unwinding continues
(Adds quotes, updates prices, changes byline)
By Tamawa Desai
LONDON, March 4 (Reuters) - The dollar surged on Wednesday, closing in on 100 yen, as contracting Australian growth and concern about Japan's economy kept markets' focus on global financial stress despite a rebound for battered stock markets.
Broad dollar gains also shook the euro to its lowest in more than three months. The yen's losses coincided with bargain-hunting in equities, but global stocks are still down 5 percent so far this week, prompting a shift into a U.S. currency that is still seen as relatively safer bet in the crisis.
Figures released earlier in the day showed Australia's economy unexpectedly contracted last quarter for the first time in eight years, sending the Australian dollar tumbling and taking the euro with it.
That came after global share prices tumbled sharply earlier in the week on concerns about ailing financial firms and global recession.
"It's a risk environment and it's not easily going to change," said Daragh Maher, deputy head of global foreign exchange at Calyon.
By 1208 GMT, the dollar was up 1.0 percent on the day at 99.28 yen, having earlier hit 99.48 -- its highest since early November -- according to Reuters data.
The euro fell as far as $1.2457 on trading platform EBS to its lowest in more than three months. It was last down 0.2 percent at $1.2541 yen. Data showed the euro zone's service sector was still in decline in February, with services PMI hitting a record low.
The dollar index hit a three-year peak at 89.624, fast approaching 89.90, which would mark a 38.2 percent technical retracement of its long-term decline from 2001 to 2008. The Australian dollar tested its lowest levels in more than a month at $0.6285 before recovering to $0.6391.
Traders said the euro also drew fire ahead of Thursday's meeting of the European Central Bank, which is expected to cut interest rates to a record low of 1.5 percent from 2.0 percent.
ECB Governing Council members Axel Weber and Christian Noyer said on Tuesday the central bank was considering all options to extend its monetary toolbox further.
YEN WEAKNESS
The Japanese currency was broadly lower, with dealers citing a range of negative factors. The euro rose to a one-week high of 124.60 yen, while sterling was up 1.7 percent at 140.21 yen, closing in on the year's high of 141.80.
"Speculators (are) still unwinding their long-yen positions, overseas investors shedding Japanese stocks holdings and repatriating funds, and Japanese pension funds buying up foreign stocks to neutralise their holdings of overseas stocks after big falls in global equity markets," said Tohru Sasaki, chief currency strategist for JPMorgan in Tokyo.
The yen's weakness was amplified by the arrest of a close aide to Japan's opposition leader Ichiro Ozawa in a fund-raising scandal that further clouded the political picture.
Meanwhile, Bank of Japan board member Miyako Suda said on Wednesday it was hard to say whether the economy had hit bottom and voiced concerns on tumbling share prices.
"The markets have a view that Asia is going to perform just as badly maybe as Europe and the U.S. this year and there's a view that dollar/Asia en-masse should go higher," said Chris Turner, head of FX research at ING in London.
There was some optimism in reports of Chinese plans to increase spending in areas such as infrastructure and manufacturing on top of the 4 trillion yuan ($584.7 billion) stimulus package unveiled in November.
That helped Tokyo share prices end modestly higher.
Investors are now looking to U.S. economic data due later in the day including a monthly private employment survey, which could set the tone for the government's non-farm payrolls data on Friday.
Economists expect the ADP national employment index due at 1315 GMT to show a loss of 610,000 jobs in February. (Additional reporting by Veronica Brown in London and Satomi Noguchi in Tokyo; editing by Patrick Graham)