* Euro dips after Spanish bond auction * Weak euro zone retail sales data also weighs on euro * Markets to focus on ECB rate decision on Thursday By Anooja Debnath LONDON, Dec 5 (Reuters) - The euro retreated from a seven-week high against the dollar on Wednesday, knocked lower by lacklustre demand at a Spanish bond auction and weaker-than-expected euro zone retail sales figures. The single currency hit a session low of $1.3061, down 0.2 percent on the day, and falling past reported stop loss orders at $1.3075-80. It slipped from its earlier peak of $1.3127, the highest level since Oct. 18, with technical strategists citing near-term resistance around the October high of $1.3140. Market sentiment soured after Spain's 4.25 billion euro ($5.56 billion) debt sale fell short of expectations and revived talk of an official bailout request from Europe's fourth-largest economy. Euro zone retail sales data for October also weighed on the euro after a sharper-than-expected fall thwarted prospects of a consumer-led recovery from recession. "There was a little bit of a consolidation after the euro's strong run up, so we are seeing a little bit of retracement after the Spanish bond auction," said Marcus Hettinger, global FX strategist at Credit Suisse. The euro had strengthened broadly in recent days after Greece announced better-than-expected terms for a debt buyback, fuelling optimism the country will continue to receive international aid and avoid default. Market players who had previously bet against the single currency cut those positions as investor appetite for euro zone assets improved, although strategists warned the euro remained vulnerable to underlying worries about weak euro zone growth. Some strategists said the euro could also weaken if signs that policymakers are struggling to avert the looming U.S. "fiscal cliff" intensify, fuelling worries the global economy could suffer and lifting demand for the highly liquid dollar. The fiscal cliff is a combination of tax hikes and spending cuts due to kick in early next year that could tip the world's biggest economy into recession. "At the moment, in our view the market is positioned for the fiscal cliff to be resolved before year end," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi. "This however leaves the market vulnerable to any signs of disappointment in the negotiations which we feel could be temporarily positive for the dollar due to more risk-averse trading between now and year-end." CENTRAL BANKS IN FOCUS Credit Suisse's Hettinger said that while he expected a stronger euro over the next three months, a European Central Bank meeting on Thursday and labour market data out of the U.S. on Friday could prevent the euro from breaking above $1.32. The ECB is expected to keep rates on hold at its policy meeting on Thursday but the bleak outlook for the euro zone has kept expectations of further easing alive. Meanwhile, bets that the U.S. Federal Reserve will unveil a fresh bond purchase scheme to replace Operation Twist, a programme that will expire this month, at its policy meeting on Dec. 11-12 could weigh on the dollar. "If the Fed were to decide to buy Treasuries in either December or January, that will be negative for the dollar and thus positive for the euro," Hettinger said. The euro pulled back from a 7-1/2 month high of 107.96 yen hit earlier on Wednesday to last trade up 0.1 percent at 107.33 yen, while the dollar rose 0.3 percent to 82.17 yen. Investors have been expecting a more dovish stance from the Bank of Japan if the main opposition party wins a Dec. 16 election as seems likely. The single currency also hit a 2-1/2 month high against the Swiss franc, extending recent gains after Switzerland's largest banks said they would charge for some franc deposits.