* Dollar benefiting from rise in U.S. yields this week
* ECB rate decision on Thursday hangs over market
* Slowdown in euro zone inflation seals case for ECB action
* Aussie gets brief lift vs U.S. dollar after upbeat Q1 GDP (Updates with start of European trade, changes dateline from previous SYDNEY/SINGAPORE)
By Patrick Graham
LONDON, June 4 (Reuters) - The dollar hit its highest in a month against the yen on Wednesday, reflecting a jump in U.S. Treasury yields this week that has helped prod the currency to three-month highs in trade-weighted terms.
The Swedish crown was the biggest gainer of the main European currencies, driven higher by better than expected industrial output data that showed a recovery in April from a dip a month earlier.
Longer-dated U.S. Treasury yields have risen 20 basis points in the past week and added around another five in U.S. trade, also prodding the dollar higher against the pound and euro.
Hanging over the market are expectations of action by the European Central Bank on Thursday to support growth that would put official returns on euros into negative territory.
That has provoked some yo-yo moves for the euro in the past few days but the week's dominant trend is for a stronger dollar.
"What we've seen this week is reality bites and it's as simple as that," said Simon Derrick, head of currency research at Bank of New York Mellon in London.
"There is a realisation taking place that the Fed is concerned by the scale of risk-taking that is going on and as such it will plough on with tapering (of bond-buying) and will be as realistic on monetary policy as it can be."
Disappointment over the pace of U.S. economic growth in the first quarter meant the dollar fell short on the raft of recommendations put out by banks and other houses at the start of 2014 for a surge in its value.
But expectations the ECB is headed for further action to ease policy have reinforced the base case for a stronger U.S. currency - that returns on U.S. government debt will rise while those in the euro area fall.
10-year U.S. yields stood at 2.57 percent early on in Europe, just off a peak of 2.60 reached overnight. The equivalent Bund yields 1.41 percent.
The dollar gained 0.2 percent to 102.665 yen and was up 0.1 percent against the euro at $1.36115 and 0.2 percent against the pound at $1.6713
CROWN IN GLORY
There have been question marks over the health of the Swedish economy, hit as elsewhere in Europe by the threat of deflation, and a 3.0 percent rise in industrial production in April did something to settle those nerves.