Nikkei up for 4th day amid lull in Europe worries

* Nikkei fell in morning session but later recovers ground

* Spain downgrade not a surprise, factored in - analyst

* Nikkei slides marks worst monthly fall since Oct 2008

By Shinichi Saoshiro

TOKYO, May 31 (Reuters) - Japan's Nikkei average inched up for a fourth straight day of gains on Friday amid a lull in worries about Europe's debt crisis, with market players saying Fitch Ratings downgrade of Spain had already been priced in.

But concerns about sovereign debt woes in the euro zone pushed the benchmark to slide nearly 12 percent in May, its worst monthly fall in 1-½ years.

A number of exporters including Canon Inc (7751.T) eked out gains as the yen fell back against the dollar and the euro, with market players saying investors were bargain-hunting on any dips in share prices.

"The Nikkei looks oversold around current levels if the fiscal crisis in Europe is to be contained," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.

"Markets have been relatively calm since late last week, paving the way for the Nikkei to consolidate and attempt a rebound."

Fitch cut Spain's credit rating by one notch on Friday, saying its economic recovery will be more muted than the government forecast due to its austerity measures. The downgrade helped send Wall Street lower ahead of a three-day weekend. [ID:nLDE64R1ZE] [ID:nN28218151]

Market players said however the impact of the rating cut on the broader market was limited for now, noting that many analysts had expected the move and only the timing was a surprise.

"While Fitch did cut Spain's rating, S&P did the same thing in April, so it's not as if the move was all that new," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"There's the sense that the Nikkei may be about to start a bit of a rebound. It's held up quite well even though Wall Street fell. But gains will definitely be capped around 10,000 for now," Ushio said.

The benchmark Nikkei .N225 rose 5.72 points to 9,768.70 in light trade. At one point it fell as low as 9,728.42. The broader Topix .TOPX rose 0.2 percent to 880.46.

Technical indicators are starting to point tentatively towards a possible rebound, with the Nikkei's relative strength index (RSI) climbing above 30 late last week. Anything under 30 is considered oversold.

The Nikkei's MACD has also stopped falling and appears to be inching upwards.

The euro rose 0.8 percent against the yen to 112.69 yen EURJPY=R while the dollar rose 0.5 percent against the yen to 91.50 yen JPY= after touching 91.63 yen on trading platform EBS, a 10-day high. [FRX/]

Canon (7751.T) rose 0.1 percent to 3,745 yen and Nissan Motor Co (7201.T) edged up 0.3 percent to 664 yen.

CONSUMER LENDERS DROP

Shares of Promise Co 8574.T dropped 6.3 percent to 591 yen, their lowest intraday level since Dec. 21, extending losses after Moody's Investors Service cut the consumer lender's credit ratings by two notches, highlighting the severe business environment for the industry.

Trading houses slid after metals prices fell on Friday in the wake of the Spain ratings cut.

Mitsubishi Corp (8058.T) shed 1.1 percent to 2,052 yen and Mitsui & Co (8031.T) lost 2.0 percent to 1,294 yen.

Electronics conglomerate Hitachi (6501.T) rose 0.5 percent to 372 yen after it said it plans to focus spending on infrastructure-related businesses such as power plants as it seeks to more than double its profit over the next three years. [ID:nTOE64U027]

Some 1.8 billion shares changed hands on the Tokyo exchange's first section, the lightest volume since March. Advancing shares outnumbered declining ones by nearly 4 to 1. (Additional Reporting by Elaine Lies; Editing by Edwina Gibbs)