Spy Guys are Shy Guys disguised in camouflage gear. They debuted in Paper Mario, and attack with either a slingshot or a hammer (the weapon of choice will change if you get attacked). Your best bet is to hit him until he changes his weapon of choice to a slingshot; this way, you won't lose any of your commands (if Mario gets hit with a hammer and doesn't guard against it properly, he'll lose one of his action commands for several turns).

Battle Statistics

Spy Guy's Stats (Paper Mario)
Max HP 7
Attack 2
Defense 0
Attacks Slingshot / Hammer