tsql can't connect to SQLAnywhere 12

Hi! I am having some trouble connecting to SQLAnywhere 12. I think it's some configuration error, but not sure which one, could someone please help?

I am using freetds 0.82

This is how I started SQLAnywhere, as you can see the database name is mydemodb
> dbeng12 -n mydemodb demo.db

Here is my freetds.conf
[mydemodb]
        host = 127.0.0.1
        port = 6010
        tds version = 5.0

Here is my command line:
>export TDSVER=5.0
>tsql -S mydemodb -U dba -P sql
locale is "en_US.UTF-8"
locale charset is "UTF-8"
Msg 20017, Level 9, State -1, Server OpenClient, Line -1
Unexpected EOF from the server
Msg 20002, Level 9, State -1, Server OpenClient, Line -1
Adaptive Server connection failed
There was a problem connecting to the server


On server side, there's an error message:
"connection rejected because of wrong authentication."

The user ID and password are correct.