* Euro at 3 week low vs dollar on WestLB rescue hitch
* EUR/USD breaks below key technical support
* U.S. budget proposal a focus, but does not sway (Recasts, updates prices, adds quote, changes byline, changes dateline previous LONDON)
By Julie Haviv
NEW YORK, Feb 14 (Reuters) - The euro hit a three-week low against the dollar on Monday as uncertainty over the plight of troubled German bank WestLB and euro zone debt concerns kept investors on edge.
Aid for WestLB hangs in the balance, a source told Reuters on Monday, as the bank struggles to come up with a rescue deal ahead of presenting a restructuring plan to the European Commission.
"Failure to find a find a solution for West LB would result a winding down of the bank's assets," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "The story revived concerns about Europe's banking sector and highlighted the still unresolved issues plaguing the bloc's indebted peripheral nations."
The euro slipped 0.7 percent to $1.3452 with selling coming largely from eastern Europe in the aftermath of the WestLB news.
The move triggered stop-losses on the break of $1.3500, taking the euro below support at $1.3483, the 38.2 percent retracement of its rally from January to February. Stops in the upper$1.34s, a trader said.
Greg Anderson, G10 strategist at CitiFX in New York, said the next technical level should be $134.33.
"President Obama's budget plan is taking a backseat to events overseas," he said.
President Barack Obama's 2012 budget plan would slash the U.S. deficit by $1.1 trillion over 10 years, officials said on Sunday, but Republicans were unimpressed and vowed to push for deeper cuts in spending.
CitiFX's Anderson said the proposal did not sway the dollar and markets await clarity with what happens with negotiations with Republicans in Congress.
Selling in the euro helped to boost the dollar broadly on the day, pushing it up around 0.34 percent on the day against a currency basket to 78.734, trading above its 100-day moving average for the first time in four weeks.
The dollar was nearly unchanged at 83.40 yen .
PORTUGAL, SPAIN DEBT EYED
A 0.3 percent quarterly contraction in the Portuguese economy at the end of 2010, and a slight monthly fall in euro zone industrial production in December kept euro sentiment sluggish, although the separate figures were largely in line with forecasts.
Spanish bond auctions will be a focus for euro zone investors on Thursday, while investors await details of a European debt rescue fund next month.
"Concerns about a European debt rescue plan will remain in place until March, and that is definitely a risk for the euro, particularly when you consider the peak redemption for Portuguese and Spanish bond redemptions in Q1," said Sven Schubert, currency strategist at Credit Suisse in Zurich.
Benchmark government debt yields in Portugal have climbed around all-time highs above 7 percent, which market participants consider to be dangerously high in a country many believe may be forced to appeal for a bailout.
DATA FLURRY
This week ushers in a flurry of data, with euro zone fourth quarter GDP due for the euro area Tuesday, when the United States releases New York manufacturing data and retail sales.
With global inflation a hot topic, a number of countries will release consumer price index data this week, including the Britain, the United States, Sweden and Canada.
"While the market will undoubtedly trade around these data points, there will likely be bigger interest in how central banks frame future policy moves," Anderson said. "The BoE (Bank of England) gets its chance to do so with the quarterly inflation report that will be released on Wednesday, which is the same day that minutes from the last (Fed's monetary policy board) FOMC meeting will be released."
The focus later this week will a G20 finance officials meetings on Friday and Saturday. (Additional reporting by Neal Armstrong in London, Editing by W Simon ) (To visit Reuters Insider's "United States of Distress" microsite, double-click:http://link.reuters.com/jyg97r)