By Isabel Reynolds
TOKYO, Nov 7 - The dollar sagged to a two-and-a-half week low against the yen on Wednesday and slipped against the euro, failing to draw support from the U.S. Federal Reserve's decision to cut rates for the 10th time this year.
The Fed cut rates by 50 basis points on Tuesday, driving short-term interest rates to a 40-year low of 2.0 percent.
But the move did not not surprise the market and the dollar drifted to a low of around 120.70 yen , its lowest level since October 18, with some analysts saying further such cuts in short-term rates would do little to help the U.S. economy.
Dealers said the Fed's move offered Japanese investors a prime opportunity to take profits on the U.S. Treasuries they have been snapping up since late September.
Long-dated U.S. T-bonds have risen sharply after the suspension of new issues of 30-year bonds announced last week.
But some analysts were sceptical of the effect of any such sales on currency levels.
"However much Treasuries are sold, most of them were bought with funds raised in dollars, so the effect on currency trading should be minimal," said Satoru Ogasawara, an analyst at Credit Suisse First Boston.

INTERVENTION LOOMS
Though Finance Minister Masajuro Shiokawa has been silent on currency levels recently, the Japanese government is still seen as ready to step into the market if dollar-yen slips through the 120 yen level.
Earlier in the day, the Ministry of Finance (MOF) said it had spent 3.2 trillion yen ($26.42 billion) on intervention in the July-September quarter, a record amount for a quarter.
That aggressive intervention pushed the dollar from lows around 115.80 yen in late September to a high above 123 yen hit in late October.
"If the dollar suddenly breaks down through 120 yen, MOF could well intervene, and I think the market will turn cautious," said CSFB's Ogasawara.
The dollar was little affected by brewing financial turmoil in Argentina, despite the United States' close economic links with that country.
Argentina's government unveiled on Tuesday a debt-restructuring plan that it hoped would revive its troubled economy.
But some ratings companies responded by declaring that any debt affected by the plan would be in default or close to default.
The dollar showed little reaction because Argentina's financial woes have been known to the market for some time, dealers said. They added that it was not clear whether Latin America's third-biggest economy could win back the confidence of global investors.

ECB IN FOCUS
After slipping in early trade, the euro began to recover ground ahead of the European Central Bank (ECB) policy meeting on Thursday.
"Given the recent fall in euro zone inflation and dovish comments from ECB President (Wim) Duisenberg, it seems likely now the ECB will cut rates at the meeting this week," Junya Tanase of Chase Manhattan said in a report.
The euro was quoted at 89.92 cents in mid-afternoon, well up on 89.48 cents in late New York trade.
Against the yen, the single currency was stronger at 108.60 yen after touching a low of around 108.20 earlier in the day.
"The ECB is still seen as behind the curve (on interest rate cuts), so I think that will weigh on the euro," said Ogasawara.