The dollar slumped to three-year lows on Thursday, pushing U.S. crude to a 2- year high, while Asian stocks rose as investors bet that the easy U.S. monetary policy will continue to drive money to riskier assets.

The Bank of Japan (BOJ) is also expected to maintain its ultra-loose monetary policy later in the day and indicate its readiness to ease further if damage from last month's earthquake proves bigger than expected.

Putting pressure on the BOJ to do more, latest data showed Japanese factory output fell at a record pace in March.

With the two major central banks keeping interest rates near zero, investors are set to continue using the dollar and yen as funding currencies to buy higher-yielding assets, commodities and equities.

The reason for the dollar's broad weakness is that market players think it makes sense to use the dollar to fund investment in various assets, since U.S. interest rates are likely to stay low for a while, said Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo.

Japan's Nikkei average <.N225> rose 1.3 percent, while stocks elsewhere in Asia <.MIAPJ0000PUS> put on more than 1 percent to hit a new three-year peak.

Trading volume in Japan's stock markets, however, is expected to be thin as the Golden Week holidays loom and as investors awaited earnings from the likes of Panasonic Corp <6752.T> and Honda Motor <7267.t> due after the market close.

If earnings continue to impress the market, the Nikkei may rise further, said Makoto Kikuchi, chief executive officer at Myojo Asset Management.

Japanese markets will be shut on Friday and will reopen on Monday, ahead of more holidays next week.

Also highlighting hefty demand for higher-yielding assets and exposure to fast-growing emerging Asian markets, Indonesia's $2.5 billion medium-term note offering this week was nearly 3 times oversubscribed, with half the issue snapped up by U.S. investors.

The dollar index <.DXY>, which tracks its performance against a basket of major currencies, fell to as low as 72.878 -- a level not seen since July 2008.

Dealers also said several central banks in Asia were spotted buying the greenback to check sharp gains in their currencies.

The euro rose to a 16-month high of $1.4878, further spurred by stop-loss buying after a breach of option barriers around $1.4800, while the Australian dollar touched a post-float high of $1.0948.

In the commodities market, U.S. crude scaled a 2-1/2 year peak of $113.70 a barrel, and gold raced to a record high above $1,530 an ounce. Copper gained nearly 2 percent to around $9,490 a tonne.

U.S. Treasury yields were a touch lower, after having risen on Wednesday as the market made room for an upcoming seven-year supply. The two-year yield slipped 1.2 basis points to 0.6368 percent.

(Additional reporting by Masayuki Kitano in Singapore and Ayai Tomisawa in Tokyo; Editing by Ramya Venugopal)

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