* Euro falls, reverses initial rally after ECB tender * ECB allots bigger-than-expected loans to struggling banks * Analysts: Tender won't solve crisis, euro downside seen LONDON, Dec 21 (Reuters) - The euro hit the day's low against the dollar on Wednesday, reversing earlier gains after a bigger-than-expected take up by banks of cheap, official loans did little to convince investors that debt problems in the region were improving. The ECB allotted 489.2 billion euros in a three-year loans to struggling banks in the region, a move investors hoped would boost lenders finances and ease pressure on indebted European states. The euro initially rose nearly 1 percent on the day to a one-week high of $1.3199, before giving up the day's gains to trade around $1.3072. Some market participants said holiday-thinned markets helped to exacerbate the euro's choppy moves. Analysts said many in the market were expecting healthy demand for the loans, which were a constructive way for the central bank to help struggling banks. But they added that the tender was one of many steps that need to be taken to help solve the euro zone debt crisis, and that the euro would remain under selling pressure in the coming months if European policymakers are seen dragging their feet to solve the issue. "It's not much of a surprise that there was a big take up. This reduces euro zone stress for now," said Steven Saywell, head of European FX strategy at BNP Paribas. He added: "This is not the only thing the ECB needs to do. This is not going to skewer all the problems in the euro zone." Some analysts said that making more loans available to struggling banks would ultimately do little to solve the euro zone debt crisis. GAINS WIPED OUT The euro relinquished its post-tender gains against the dollar as investors used the jump in the single currency to sell it back down. It broke below $1.3100, its 100-hourly moving average which had been seen as a near-term support level. Traders said they the euro would face more selling pressure during the day if it trades below that level. Many analysts expected the euro to stay on the back foot, adding that any negative news on the debt crisis could send it lower in the months to come. "The euro's problems are not going to fade just because of the year-end, and I wouldn't go into the new year and buy the euro strongly," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt. Despite its recovery against the euro, the dollar slipped 0.2 percent lower versus a currency basket to 79.688, pulling further away from an 11-month high hit last week. Against the yen, the dollar was little changed at 77.80 yen. The single currency hit an all-time low against the Australian dollar as slightly better risk appetite due to a rise in global share prices increased the appeal of commodity-linked currencies. The Australian and New Zealand dollars each rose around half a percent versus the U.S. currency. The euro was flat at 1.2188 Swiss francs, but remained on the back foot as the Swissie has been gaining strength since last week when the Swiss National Bank kept the euro/swiss floor unchanged. This disappointed some speculators who had bet on a rise to 1.2500 francs.

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