* Euro down 0.4% before France, Germany, Greece teleconference
* Aussie down after inflation data revised lower
* Aussie fall extended after break of key chart level
* Aussie drop weighs on other risky assets
* Muted reaction to French bank ratings downgrade
TOKYO, Sept 14 (Reuters) - The euro dropped on Wednesday, back towards a seven-month low plumbed this week, with risk sentiment that was shaky ahead of debt talks between Greece, France and Germany further knocked by Australian inflation data.
Alarm over euro zone's debt has reached new highs and on Tuesday Italy was forced to offer the highest interest on 5-year paper since it joined the euro in 1999.
The euro fell 0.4 percent to $1.3622 , giving up earlier modest gains which had been made on short-covering by hedge funds after news of the teleconference between the three European countries emerged.
"The conference call will at least calm nerves ... and may provide 24 hours of reprieve. That's about it, though," said Sean Callow, a senior currency strategist at Westpac. "There are plenty of road bumps (ahead)."
The euro has dropped more than nine cents, or 6 percent, in two weeks from a high of around $1.4548 on Aug. 29, hitting a seven month trough on Monday at $1.3495.
The Australian dollar tumbled around one cent to $1.0215 after a downward adjustment to second-quarter inflation added to the case against higher rates while a break of key support triggered heavy selling from macro funds.
The move weighed heavily on other riskier assets, with strong selling also emerging in other Asian currencies such as the Korean won which tumbled more than two percent, while the Indonesian rupiah and the Malaysian ringgit both fell around one percent.
"People are taking profits from whatever assets they have profits to take on. If they start to sell Asian stocks, that'll be pretty nasty," said a Japanese bank trader.
The fall in the Aussie accelerated after it slipped below major support at $1.0247, the 61.8 percent retracement of its rally last month, and at one point it dropped to a one month low of $1.0210.
"It all started from the Aussie, spilled to stocks and in a typical 'risk-off' fashion weighed on the euro," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking, adding that with more political events ahead, traders were reluctant to offload further.
In a measure of the alarm in Washington, Treasury Secretary Timothy Geithner will take the unprecedented step of attending a meeting of EU finance ministers in Poland on Friday. It will be his second trip to Europe in a week after he met his main EU counterparts at a G7 meeting last weekend.
FRENCH BANKS' RATINGS CUT
With the euro's sharp decline in the past two weeks, investors have been pricing in the growing prospect of a Greek default, as well as a likely Italian sovereign rating cut by Moody's.
They have already priced in a rating cut to the top French banks, with the euro holding steady after Moody's downgraded ratings on Credit Agricole SA and Societe Generale SA by one notch, citing their exposure to the Greek economy.
Comments from China's Premier Wen Jiabao on Wednesday that China is willing to invest more in European countries failed to inspire a new bounce for the euro. This week it rose after a news report, later denied by Italian officials, that China had been asked to purchase large chunks of Italian debt.
Some in the market are now hoping for progress on at least the next tranche of aid for Greece, which would put off a default, at least for now.
Support for the euro is seen at $1.3557 and $1.3495, while resistance lies at its 100-week moving average at $1.3738. A break above that could test a key barrier at around $1.3900, the 38.2 percent Fibonacci retracement of its $1.4550/$1.3494 move.
The fall in dollar's major crosses, pushed the dollar index to 77.28, after a 0.6 percent drop on Tuesday. Against the yen, the dollar slipped to 76.86 yen , but remained within the snug 76.40/77.85 range of the last three weeks.
Investors have been wary of a possible intervention by Japan to weaken its currency, following Switzerland's lead last month. The yen has been the primary beneficiary of safe-haven flows after the Swiss National Bank took aggressive actions to halt the rise of its currency.
Figures on U.S. producer prices and retail sales are due later in the day, along with industrial production data in Europe. (Additional reporting by Hideyuki Sano; Editing by Edwina Gibbs)