UPDATE 1-G20 draft omits G7 reference to economic policy aims
* Doesn't follow key language in this week's G7 statement
* Fiscal language makes allowance for near-term challenges
* Germans want more fiscal discipline; others concerned
MOSCOW, Feb 15 (Reuters) - A draft communique prepared for Group of 20 finance leaders omits part of this week's Group of Seven statement declaring fiscal and monetary policy may only be used for domestic economic aims, a G20 delegate said on Friday.
It will merely stick to previous G20 language on the need to avoid excessive foreign exchange volatility and steer clear competitive devaluations.
The G20 leading economies intend to reaffirm their commitments to draw up credible medium-term fiscal plans but will also make allowances for the short-term economic situation facing some countries, the delegate said after negotiations.
"Everyone's bought into that," the delegate said.
The new emphasis on near-term considerations deferred to the United States and some others whose recoveries are still struggling.
The key paragraphs of the draft hammered out after several hours of talks make no direct mention of fiscal targets, in response to U.S. pressure, nor do they repeat the G7's language pledging not to target certain foreign exchange rates.
The currency market was thrown into turmoil after the G7 - the United States, Japan, Germany, Britain, France, Canada and Italy - issued a joint statement on Tuesday stating that domestic policies must not be used to target currencies.
Tokyo said that reflected agreement that its aggressive monetary and fiscal policies were appropriate but the show of unity was shattered by off-the-record briefings critical of Japan.
Tokyo was not singled out in the negotiations. "There wasn't anybody putting Japan on the spot. That's quite frankly a bit of a surprise," the delegate said.
In terms of reining in fiscal deficits, some took the view that the consolidation so far had been too aggressive, whereas Germans, European Commission and European Central Bank saw the slow fiscal progress as creating uncertainty.
"There's a concern in the G20, and it's not just the Americans, that if you end up with a target...which implies a very significant (fiscal) consolidation over a very long period of time, then you are signaling to the world that you are going to be imposing a fiscal drag," the delegate said.
"That's not the right message to convey when we're still concerned about growth in the near term.
"The Germans have the opposite view, which is the more credible you are, the more ambitious you are, over the medium term, the more people feel good about themselves now and the more they spend."
There was a big fight over whether to include the word "targets" in the section on fiscal plans, and in the end the Americans won, with the word excluded.