* Spanish yields sharply higher after disappointing bond sale * Weak euro zone retail sales data also weighs * Markets to focus on ECB rate decision, U.S. jobs data By Wanfeng Zhou NEW YORK, Dec 5 (Reuters) - The euro fell from a seven-week high against the dollar on Wednesday after a disappointing Spanish bond auction and weak euro zone economic data prompted investors to book profits on recent gains. Optimism that Greece will continue to receive money from its international lenders had buoyed the euro over the past week, driving it above $1.31. But the rally has lost steam as worries about Spain resurfaced. Spain auctioned fewer bonds than it hoped to on Wednesday, sending yields sharply higher and reviving talk of an official bailout request from Europe's fourth-largest economy. "Overnight we did break above $1.31...and the Spanish auction drove us back down to familiar ranges that we saw yesterday," said John Doyle, currency strategist at Tempus Consulting in Washington. The euro fell 0.2 percent to $1.3067, retreating from a session peak of $1.3126 on Reuters data, the highest since Oct. 18. It was the first fall in the euro against the dollar in six trading sessions. Further chart resistance is located at the October high around $1.3140 and the September high around $1.3170. A sharp fall in euro zone retail sales for October dented hopes of a consumer-led recovery from recession, which also pressured the euro. Camilla Sutton, chief currency strategist at Scotia Capital in Toronto, said she expects a broader range of $1.26 to $1.32 in the euro in the near term. "There is still too much uncertainty to drive euro back to its year-to-date highs (near) $1.35; accordingly we would expect the current rally to top out." The European Central Bank meets on Thursday and is expected to keep rates on hold but the bleak outlook for the euro zone has kept expectations of further easing alive. On Friday, the U.S. Labor Department releases its closely-watched nonfarm payrolls data for November. U.S. private-sector employers added 118,000 jobs in November, a report by a payrolls processor showed on Wednesday. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 125,000 jobs. The data had little impact on currencies. "Overall, the headlines on the fiscal cliff and any headlines on Greece and Spain are going to be dominating the dollar reaction. The actual data out of the States area is probably going to have a lesser effect until the nonfarm payrolls data on Friday," Tempus Consulting's Doyle said. 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 safe-haven 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." The euro was slightly down against the yen at 107.20 , having risen as high as 107.95 on Reuters data. It 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. The dollar rose 0.2 percent to 82.04 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.