FOREX-Euro rises vs dollar for first time in 4 days
* IMF's Lagarde backs giving Spain, Greece more time
* S&P cuts Spanish rating to just above junk
* Japan minister warns of economic risks from stronger yen
By Wanfeng Zhou
NEW YORK, Oct 11 (Reuters) - The euro rose against the dollar for the first time in four days on Thursday after the head of the International Monetary Fund said indebted euro zone economies should have more time to cut budget deficits, overshadowing a downgrade of Spain's credit rating.
The dollar slipped against higher-yielding currencies while the yen weakened broadly after an unexpectedly sharp fall in claims for U.S. jobless benefits spurred investors to sell perceived safe havens and buy currencies with better returns.
Christine Lagarde, the IMF's managing director, said she favored giving debt-burdened Greece and Spain more time to reduce their budget deficits because cutting too far and too fast would do more harm than good.
Lagarde's comments were seen supporting stability in the euro zone and reducing the risk of Greece exiting the 17-member bloc. Germany, however, responded by saying back-tracking on debt-reduction goals would hurt confidence.
"We had some relatively supportive comments from Christine Lagarde overnight regarding indebted euro zone nations," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "That's a net positive for the euro."
"We also had the better-than-expected economic data this morning out of the United States, in particular much better-than-expected weekly jobless claims numbers, which added to the overall improved mood throughout financial markets."
The euro rose 0.5 percent to $1.2930. It had fallen to $1.2824 earlier in Asian trade, the lowest since Oct. 1, after Standard & Poor's cut Spain's sovereign credit rating to BBB-minus, just above junk status, with a negative outlook.
The IMF this week released research showing that fiscal consolidation has a much sharper negative effect on growth than previously thought.
Some analysts said the euro reversed losses made after the downgrade of Spain on hopes that the ratings move may prompt Madrid to ask for aid sooner.
"Investors were initially spooked by the bad news from the euro zone, but soon realized that bad news is actually good news overall due to the fact that this now speeds up the timeline for Spain to request a bailout," said Neal Gilbert, market strategist at GFT in Grand Rapids, Michigan.
The euro also drew technical support after failing to break below its 200-day moving average around $1.2822. Demand from Asian central banks was reported at $1.2850.
Uncertainty over when Spain would seek a bailout and fresh concerns over Greece could limit gains in the euro. A request for aid by Spain is widely seen as positive for the euro because it would remove a layer of uncertainty and activate the European Central Bank's bond-buying program aimed at easing pressure on troubled economies.
Against the yen, the euro rallied 0.6 percent to 101.26 yen . The dollar gained 0.2 percent to 78.31 yen.
The number of Americans filing new claims for unemployment benefits fell to 339,000 last week, the lowest since February 2008, according to government data, suggesting improvement in the labor market.
The yen also weakened as speculation grew that the Bank of Japan may take action to curb yen strength. Japan's newly appointed finance minister, Koriki Jojima, said further yen gains would pose major downside risks to the Japanese economy.
Higher-yielding currencies gained. The Australian dollar reversed earlier losses and climbed to its highest since Oct. 2 at $1.0294, after the country's employment rose more than expected. It was last up 0.4 percent at $1.0268.
The Swedish crown fell to a three-month low against the euro after Swedish inflation data came in below economists' forecasts, supporting expectations a rate cut could be imminent. The euro was last up 0.5 percent at 8.6680.