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NEW YORK, Dec 5 AFP

December 06 2012, 10:52AM

The euro hit its best level against the dollar since mid-October in early trade on Wednesday but then sank to end the day for a loss after Spain missed its target in a fresh debt auction, traders said.

The euro pushed as high as $1.3123 during the day but then sank to trade at $1.6088 at 2200 GMT (0900 AEDT), getting a very slight push further downward in late trade from S&P's procedural downgrade of Greece to "selective default" as Athens launched its debt buyback.

"Spain's bond auction further dampened the appeal of the single currency as the region sold 4.25 billion euros of bonds versus the 4.50 billion euros target," said David Song of DailyFX.

"The weakening outlook for the region may produce a short-term reversal in the exchange rate should the European Central Bank show a greater willingness to ease monetary policy further," he added.

The ECB policy board meets on Thursday and is expected to lower its growth forecasts for the euro area.

But analysts predict it will also argue that cutting rates is not the appropriate response yet.

The dollar also got support from an encouraging read on the ISM services sector index for November: the index increased, representing a slight pickup in sector growth, contrary to ISM's manufacturing index released Monday, which fell into contraction territory.

The yen fell: the euro gained to 107.71 yen from 107.22 on Tuesday, and the dollar bought 82.42 yen, up from 81.88.

The dollar was flat against the Swiss franc, at 0.9265 francs, while the British pound slipped to $1.6088 from $1.6098.