Euro falls vs dollar, snaps three-day advance

A Euro sign is seen in the window of a discount store on Moore Street in Dublin July 6, 2011.

NEW YORK (Reuters) - The euro fell on Wednesday as investors pared long positions after a three-day advance against the dollar sparked by optimism Greece's lenders will allocate the funds to avoid default on its debt.

Earlier, the euro strengthened for the fourth straight session but that gave way to the squaring of positions for month and quarter end. Month-end two-way flows dominated euro price action, with U.S. corporations and speculators selling the single currency as central banks bought it, a trader said.

"People are probably a little bit long (the euro) and squaring up ahead of quarter end and Jewish holidays," said Lane Newman, director of foreign exchange trading at ING Capital Markets in New York.

In late afternoon New York trade, the euro was down 0.3 percent at $1.35437 on electronic trading platform EBS, off a one-week high of $1.36909 touched in the overseas session in which a U.S. investment bank was cited as a large buyer.

The single currency has gained 0.5 percent in the last four sessions, but with a 5.8 percent slide month to date, the year-to-date gain is only 1.3 percent.

Greece remains a focus for investors.

EU and IMF inspectors return to Greece on Thursday to decide whether Athens has done enough to secure a new batch of aid vital to avoid bankruptcy. Germany suggested a new bailout may have to be renegotiated.

Finland on Wednesday voted to grant additional powers to the euro zone bailout fund, giving support to the euro. The proposal, which euro zone leaders agreed to in July, needs to be approved by the parliaments of all the euro zone nations.

"Markets remain intensely focused on European developments, where only slow and tentative progress in addressing the region's debt crisis is being made," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

Fears of a Greek default and its impact on Europe's banking system are largely behind the euro's September slide.

Talk of proposals to leverage up the region's 440 billion euro rescue fund -- the European Financial Stability Facility -- had buoyed demand for riskier assets this week, though investors are still cautious about pushing the euro too high.

Media reports suggest there are still splits within the euro zone over Greece's bailout terms, highlighting one of the many hurdles lying ahead for policymakers trying to resolve the debt crisis.

Wells Fargo's Bennenbroek said news that bans have been extended on short-selling stocks in France, Italy and Spain may have helped unsettle markets in general and pressured the euro.

The dollar fell 0.3 percent to 76.568 yen, within a yen of the record low of 75.941 hit in August on trading platform EBS and keeping investors alert for Japanese intervention to weaken the yen.

Investors awaited a late-afternoon speech by Federal Reserve Chairman Ben Bernanke to see if he offers some reaction to the market's mostly negative response to last week's Operation Twist by the U.S. central bank.

Any hint of even more monetary easing may further boost the euro to the detriment of the dollar.

(Reporting by Nick Olivari and Julie Haviv; Additional reporting by Wanfeng Zhou; Editing by Dan Grebler)