* U.S. private sector hiring rose by the most in a year
* But ISM employment subcomponent worries some ahead of U.S. jobs data
NEW YORK, Dec 4 (Reuters) - The dollar reversed course and fell against the yen while surrendering gains against the euro on Wednesday as investors took a second look at U.S. data and decided it didn't support an early cutback of monetary stimulus.
U.S. data showed private-sector hiring rose in November at the fastest clip in a year, exports hit a record high in October and new home sales posted their largest rise in nearly 33-1/2 years.
But a reading for the employment gauge of the Institute for Supply Management's services index showed a drop to 52.5 in November from October's 56.2 to hit its lowest since May, while business activity growth slowed to 55.5 last month from 59.7 in October. 1/2ID:nL2N0JI16X 3/4.
That undercut earlier expectations for when the U.S. central
bank will begin to contract its asset purchase program. The
Fed has said it will scale back its $85 billion-a-month in bond purchases to stimulate the economy, but the timing is still a matter of speculation.
"The employment subcomponent slumped from 56.2 to 52.5, its lowest level since March," said Christopher Vecchio, currency analyst at DailyFX in New York.
"This drop is notable because it was the employment subindex that correctly anticipated a beat in the October nonfarm payrolls figure."
With the subcomponent down, investors are pulling long dollar bets on the government's official jobs report to be released on Friday.
The euro was little changed at $1.3588, off the session low of $1.3527. Service sector data showed activity in Italy and France contracting in November but expanding in Spain and Germany, highlighting the divergence in the bloc.
The dollar was 0.5 percent lower against the yen at 101.97 yen, having traded as high as 102.83, according to Reuters data. The dollar index was down 0.4 percent at 80.586.
Markets are eyeing U.S. gross domestic product data on Thursday and the non-farm payrolls report on Friday, which will be studied for clues about when the Fed will taper its monetary stimulus. Its next policy meeting is on Dec. 17-18.
Many investors and analysts expect the Fed to begin reducing stimulus at its March meeting, so an upbeat employment report would increase speculation that tapering could come earlier.
Manuel Oliveri, currency strategist at Credit Agricole, expects the Fed to begin tapering in January and said this could be the most important week of the year for the dollar.
He added, "There's a lot of risk for the dollar to appreciate on the back of surprise data from the United States."
The euro fell across the board earlier on concern about an uneven recovery in the currency bloc. It hit a two-month low versus the Swiss franc on hedge funds selling ahead of next week's Swiss National Bank meeting, at which it is likely to reiterate its commitment to the euro/Swiss peg of 1.20 francs.
The euro was last down 0.2 percent to 1.2258 Swiss franc , having hit as low as 1.2254, the weakest since early October.
The European Central Bank meets to set policy on Thursday, after last month unexpectedly cutting its key interest rate to a record low of 0.25 percent.
"People are (also) looking at what could potentially happen at the ECB tomorrow," said Geoffrey Yu, currency analyst at UBS in London "There might be a few people expecting them to ease. I don't think we're going to get anything."
The Australian dollar fell to a three-month low after data showed 0.6 percent growth in GDP in the third quarter, which was below analysts' median forecast of 0.8 percent.
The Aussie was last down 1.2 percent to $0.9023, breaking through the key support level of $0.9050/55. A sustained break could see a retracement all the way to this year's low of $0.8848.
Hedge funds have been negative on the Aussie for some time. CQS founder Michael Hintze, whose firms run around $12 billion, told Reuters last month that he was short the Australian dollar, citing the "very, very clear" wish of central bank governor Glenn Stevens for it to weaken.