UPDATE 8-G20 set to dilute big powers' demands on currencies

Fri Feb 15, 2013 3:18pm EST
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* Communique won't single out Japan on forex

* Drops G7 demand that economic policy mustn't target FX

* ECB says euro trading at long-term average

* U.S. blocking deficit-reduction pledge - sources

* China opposes line on exchange rate targeting

By Jan Strupczewski and Tetsushi Kajimoto

MOSCOW, Feb 15 (Reuters) - The Group of 20 nations will not single out Japan over the weak yen and will disregard a call from G7 powers to refrain from using economic policy to target exchange rates, according to a text drafted for finance leaders.

A G20 delegate who has seen the communique - prepared by finance officials for their bosses - also said it would make no direct mention of new debt-cutting targets, something Germany is pressing for but which the United States wanted struck out.

If adopted by G20 finance ministers and central bankers meeting in Moscow on Friday and Saturday, Japan will escape any censure for its expansionary policies which have driven the yen lower and drawn demands for action from some quarters.   Continued...