* 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 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
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
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.