* Euro zone economy contracted more than expected * Investors look to G20 meeting for 'currency war' talk * G20 FX text may differ from G7, but same intent -Russia * Easing euro zone money market rates could weigh on euro By Julie Haviv NEW YORK, Feb 14 The euro plunged to a three-week low against the dollar and sank against the yen on Thursday after data showed a dour picture of the euro zone economy, raising speculation the European Central Bank will cut interest rates. The yen came off recent multi-year lows against the dollar as investors remained cautious a day ahead of a meeting of Group of 20 finance officials where exchange rates are expected to be an important topic, with a particular focus on the yen's recent weakness. The euro fell for the first time in four sessions against the dollar after the European Union reported that the euro zone's economy shrunk by 0.6 percent in the last three months of 2012, a steeper decline than the 0.4 percent drop forecast in a Reuters poll. The economies of German and France, the two largest economies of the 17-nation euro zone, also shrank by more than expected in the final quarter, casting doubt on forecasts of a recovery in early 2013. "The data raised concerns that the ECB may turn more dovish than they are, and there is still a risk that (they) could lower rates," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "It is surprising how confident ECB President Mario Draghi was at the December monetary policy meeting, which has helped lift the euro, but I think we got ahead of ourselves thinking everything is fine in the euro zone," she said. The euro last traded at $1.3328, down 0.9 percent, after earlier hitting a three-week low of $1.3313. The euro had hit a one-week high of $1.3520 on Wednesday and a 15-month high of $1.3711 on Feb. 1. Against the yen, the euro last traded at 124.08, down 1.2 percent on the day, but above the session low of 123.79 yen. The odds of an ECB rate cut this year grew wider, according to Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C. "Negatives have been on the rise in the euro zone ... in addition to fresh economic jitters, investors are wary ahead of Italy's national elections set for Feb. 24-25," he said. Euro zone banks' next repayment of emergency loans to the European Central Bank later this month could also weigh on the euro. The euro is up around 1 percent against the dollar and about 8.4 percent against the yen this year, largely a result of an improved appetite for risk and differing global central bank policies. G20 IN FOCUS The Group of Seven nations said this week that fiscal and monetary policies must be directed at domestic economies and not at targeting exchange rates. But confusion reigned after a G7 official said the statement was aimed at Tokyo, a comment that prompted the yen to surge on a volatile foreign exchange market. Other G7 countries later said it should be taken at face value. Hosts Russia said the G20 meeting in Moscow would back the thrust of a Group of Seven statement on currencies, but indicated there was still haggling over the final wording. The International Monetary Fund on Thursday said the talk about currency wars was overdone, playing down concerns that easy monetary policies in advanced economies had sparked dangerous devaluations. Against the yen, the dollar, was down 0.3 percent at 93.08, well below a 33-month high of 94.42 hit on Monday, according to Reuters data. The dollar briefly reacted to U.S. data showing the number of Americans filing new claims for unemployment benefits fell more than expected last week. Earlier, the Bank of Japan kept policy steady as expected and revised up its assessment of the Japanese economy. Some believe the bank may hold off on expanding stimulus next month and wait until its first rate review under a new governor, scheduled for April 3-4. "With Japan seemingly ground zero of any so-called currency war, backlash could be headed Tokyo's way at this weekend's G-20 summit," said Western Union Business Solutions' Manimbo. Although yen selling may be poised for a short term reprieve, a bearish trend still appears intact over the medium term and beyond," he said.