* Dollar benefits as fresh ECB easing prospects hit euro
* Trading subdued with U.S. markets shut for Thanksgiving (adds note from Goldman)
By Anirban Nag
LONDON, Nov 26 (Reuters) - The euro edged towards seven-month lows against the dollar and lost ground against the yen on Thursday as investors piled on bets against it, confident that the European Central Bank will ease monetary policy again next week.
In the United States, investors squared positions on Wednesday ahead of the Thanksgiving holiday. Few are likely to be active on Friday, keeping volumes rather low and ranges tight going into the weekend.
Nevertheless, the gap between yields on two-year U.S. and German government debt reached its widest since November 2006, reflecting the diverging monetary policy outlooks of the Federal Reserve and the ECB and making the dollar more attractive to investors.
The euro was down 0.1 percent at $1.0610, having skidded on Wednesday to $1.0565, its lowest since mid-April, before recovering. Against the yen, it was trading 0.2 percent lower at 130.10 yen, not far from a 7-month low of 129.77 hit on Wednesday.
The euro’s move down picked up pace after ECB officials told Reuters they were considering options such as whether to stagger charges on banks hoarding cash or to buy more debt.
The ECB meets next week and most in the market expect it to increase its asset purchase programme and lower its deposit rate, the rate at which banks park excess funds with it, from the current -0.2 percent to boost inflation.
“The market’s hope for a deeper deposit rate cut have got a lift after the Reuters report. It is very difficult to buy the euro ahead of the ECB meeting next week. So downside risks for the euro falling below $1.05 are rising,” said Yujiro Goto, currency analyst at Nomura.
The dollar was also being helped by upbeat U.S. data which bolstered expectations of a rate hike in December. Investors are pricing in more than a 70 percent chance of a rate hike, the first one in more than a decade.
The dollar index was slightly higher at 99.831 after scaling an 8-1/2-month peak of 100.170 following strong U.S. manufacturing output and business investment plan numbers on Wednesday that reinforced the case for the Federal Reserve to raise interest rates.
“Short euro/long dollar bets are one of the most direct ways to position for monetary policy divergence,” Goldman Sachs said in a note. “Our 12-month forecast for euro remains $0.95, but we think the odds are that this level is reached sooner given the potential for the ECB to ease aggressively in December.” (Editing by Hugh Lawson)