* Fed Chair nominee Janet Yellen leaves stimulus expectations intact
* Euro falls on weak euro zone Q3 GDP, French contraction
* Dollar hits two-month high above 100 yen
* Japan finmin says must retain FX intervention as policy tool
NEW YORK, Nov 14 (Reuters) - The dollar pared its gains against the euro on Thursday as Federal Reserve Chairman nominee Janet Yellen defended the U.S. central bank's stimulus to spur growth.
Yellen had on Wednesday released prepared remarks to the confirmation hearing before the Senate Banking Committee, but answered direct questions on Thursday.
The euro was down against the dollar for most of the day as the euro zone reported weakening growth, while the dollar touched a two-month high against the yen after Japan's finance minister said currency intervention was still a policy option.
While analysts were wary ahead of the question and answer session with Yellen, the current Fed vice chair said nothing that rattled investors.
Richard Franulovich, senior currency strategist at Westpac in New York added that Yellen was not saying anything controversial.
"She is making comments that would please those who are itching for the Fed to worry about financial instability and itching for the Fed to do more purchases," Franulovich said. "But she hasn't really said anything about tapering risks."
The euro was down 0.2 percent at $1.3463 after climbing to a five-day peak of $1.3497 earlier in the global trading day. It recovered much of the losses from the session low $1.3417 as Yellen spoke.
European data showed the euro zone only just emerged from recession in the third quarter with growth of 0.1 percent, dragged down by a contraction in France.
"The growth outlook for the U.S. and euro zone is beginning to diverge, with the third quarter prints suggesting there is too little optimism priced in for the U.S. and too much for Europe," said Camilla Sutton, chief FX strategist at Scotiabank in Toronto. "This is an important shift and one that is likely to support the U.S. Dollar."
The euro was likely to stay above a low of $1.3295 touched after the European Central Bank cut interest rates last week, unless the central bank opts for more easing measures, said Lena Komileva, managing director at G+ Economics in London.
"The euro will defy gravity until the ECB builds new momentum for liquidity easing," she said.
ECB Executive Board member Peter Praet raised on Wednesday the prospect of the central bank's adopting negative interest rates or buying assets from banks.
Against the yen, the dollar rose 0.8 percent to 99.98 yen with a peak of 100.14 yen, buoyed by the comments from Japan's Finance Minister Taro Aso.
Aso sparked a bout of yen selling when he told a parliamentary committee that Japan must retain currency intervention as a policy tool and be ready to take action when markets are excessively volatile.
The low-yielding yen was also hurt after Yellen suggested in her prepared remarks that she was in no hurry to trim the Fed stimulus. It was the first time the dollar had climbed above 100 yen since Sept. 11.
Sterling's downside was limited after Bank of England Governor Mark Carney on Wednesday gave an upbeat assessment of the UK economy, leaving open the possibility UK interest rates will rise earlier than previously thought.
Sterling was last trading up 0.1 percent at $1.6077 despite weak UK retail sales data.
The U.S. currency was little changed at 80.965 against the dollar index, a basket of currencies.