* Euro hits 3-week lows versus dollar and yen * Spanish yields rise after Wednesday's bond auction * SNB steps as euro dips under 1.20 francs floor By Jessica Mortimer LONDON, April 5 (Reuters) - Worries about high debt levels in Spain hurt the euro on Thursday, driving it to a three-week low versus the dollar and prompting the Swiss National Bank to step in as the franc broke through a ceilng set against the common currency last year. Spanish borrowing costs rose as investors became increasingly nervous following a poor debt auction on Wednesday about the country's ability to meet budget targets that could mark another escalation of the euro zone debt crisis. Broad euro selling saw the single currency dip below 1.20 Swiss francs for the first time since the SNB set that level as a cap for the Swiss currency in September 2011 in a bid to curb a sharp appreciation caused in part by investors fleeing the euro. The euro hit a low of 1.1990 francs on the EBS trading platform before recovering, with traders saying the SNB was seen buying euros around 1.20. An SNB spokesman said the bank would do all it could to defend the cap. It recovered to last trade at 1.2015 francs. Traders said the SNB's determination may make investors wary of testing their resolve again, but renewed euro zone debt worries may mean the central bank has to step in again. "Until now the market has been doing the SNB's work for it if there was any dip towards the 1.2000 level, buying any dip as they believed the downside to be limited because they assumed the SNB would aggressively defend it," said Richard Wiltshire, chief FX Broker at ETX Capital. "If this mood ceases to prevail then market forces may dictate they have to get involved again." Against the dollar, the euro was down 0.5 percent at $1.3076, having hit a three-week low of $1.3057. It also hit its lowest in four weeks against the yen of 106.89 yen on EBS trading platform. EURO WOES The renewed rise in Spanish government bond yields followed Wednesday's poorly received debt auction, with traders worrying that the positive impact from the European Central Bank's two low-interest, three-year funding extravaganzas may be coming to a screeching halt. "If we continue to see Spanish yields pushing out, the euro should broadly come lower and I'm happy to stick with a short position for now, looking to take profit near $1.3000," said Jeremy Stretch, head of currency strategy at CIBC. "There's a realisation that structurally the periphery of Europe remains under extreme stress." Traders reported bids around $1.3050, while technical analysts said Wednesday's close in the euro below its 55- and 100-day moving averages was a negative signal, with the focus moving to last month's lows around $1.3000. After holding interest rates at a record low of 1.0 percent on Wednesday, European Central Bank President Mario Draghi said downside risks to the economic outlook "prevailed" and dismissed talk of an exit strategy from accommodative policy measures. The dollar index, tracking the greenback's performance against major currencies, hit a three-week high of 80.079, boosted by demand for perceived safer assets. Traders reported thin market conditions ahead of the Easter holidays and all-important U.S. jobs data due on Friday. The U.S. economy is expected to have added 203,000 jobs last month, after February's non-farm payrolls rose 227,000.