* Thursday’s ECB meeting in focus
* Sterling weakens after industrial output drop
* Aussie dollar drops after weak GDP data (Adds market action, changes dateline, previous LONDON)
By Karen Brettell
NEW YORK, Dec 7 (Reuters) - The euro gained slightly on the dollar on Wednesday as investors focused on Thursday’s European Central Bank meeting for possible indications on when the central bank may begin paring bond purchases under its quantitative easing program.
The euro has been the main focus for traders this week after Italian Prime Minister Matteo Renzi’s loss in a referendum over constitutional reform on Sunday.
After initially dropping on the news, the euro rallied strongly on Monday and has since held below three-week highs against the dollar as investors wait on the ECB.
“The ECB we think is likely to announce an extension of the QE program beyond March 2017,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
The euro could extend gains if the ECB indicates a time limit to any QE extension, as investors watch for indications of tapering.
Osborne said any further euro strength is likely temporary as investors focus on higher U.S. growth prospects.
“The broader trends for the market beyond the holiday season should be dictated by stronger growth and rising interest rates in the U.S., and that should be positive for the U.S. dollar,” Osborne said.
The Federal Reserve is widely expected to raise interest rates for the first time this year when its policy-setting committee meets next week.
The euro was last up 0.25 percent against the dollar, at $1.0744, after hitting a three-week high of $1.0796 on Monday.
The dollar index, which measures the greenback against a basket of six major currencies, fell 0.12 percent to 100.37, after dropping to 99.849 on Monday, the lowest level since Nov. 15.
The dollar was flat at 113.96 yen. The yen weakened earlier on Wednesday after Bank of Japan Deputy Governor Kikuo Iwata said the central bank had not shifted its focus away from the pace of money printing.
Sterling fell as much as 0.8 percent to hit a one-week low of 85.255 pence against the euro after data showed British industrial output suffered its biggest monthly fall in more than four years.
The Australian dollar fell as low $0.7411 before retracing losses after data showed Australia’s economy shrank 0.5 percent last quarter, the largest decline since 2008. (Additional reporting by Jemima Kelly in London; Editing by Paul Simao)