* Oil above $115 a barrel on Mideast tension
* Euro rises from recent lows after Lagarde comments
* Shares boosted by jobs data, Wall St advance fades
By Leah Schnurr
NEW YORK, Oct 11 The euro gained for the first time in four days on Thursday after the IMF said euro zone economies should have more time to cut budget deficits, while oil prices rose on escalating tensions between Syria and Turkey.
European and U.S. shares climbed after data showed further signs of improvement in the U.S. labor market, though Wall Street pared its gains in the mid-afternoon.
The data overshadowed a downgrade of Spain's credit rating by Standard & Poor's late on Wednesday.
In the currency market, the euro was the primary beneficiary of improved sentiment, and it recovered from a more than one-week low. It was last at $1.2929, up 0.4 percent.
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. One of the key debates to come from the euro zone's debt crisis is whether the steep cuts needed to get budgets in order come at the expense of economic growth.
Spanish bond yields turned lower, erasing an earlier spike to near the critical 6.0 percent mark seen as unsustainable after Standard & Poor's cut the country's credit rating.
S&P cut Spain's rating two notches to BBB-minus, one step from junk status, warning that an intensifying recession and poor response from euro zone policymakers to the crisis had left Spain highly vulnerable.
"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.
Ten-year Spanish yields were down 5.4 basis points on the day at 5.77 percent, having hit a session high at 5.96 percent earlier.
Markets expect Spain to be the first of the euro zone's "big four" economies to require a rescue package.
The benchmark 10-year U.S. Treasury note was up 1/32, with the yield at 1.6768 percent.
Tensions in the Middle East pushed Brent crude up $1.36 to $115.69 a barrel, while U.S. crude futures settled up 82 cents at $92.07 per barrel. Maintenance curbs on North Sea output also pushed prices higher.
Turkish Prime Minister Tayyip Erdogan said a Syrian passenger plane forced to land in Ankara was carrying Russian-made munitions destined for Syria's defense ministry. Grounding of the plane was another sign of Ankara's growing assertiveness over the crisis in its war-torn neighbor.
"The Syrian situation is heating up and there are fears about Turkey, a NATO member, retaliating and contagion in the region," said Bjarne Schieldrop, analyst at SEB in Oslo.
Equities rose after news that claims for U.S. jobless benefits fell last week to the lowest in more than four and a half years. The data may provide a boost to President Barack Obama a month before voters go to the polls.
Still, a drop in shares of Apple Inc helped Wall Street cut its gains in afternoon trading.
The Dow Jones industrial average was up 7.84 points, or 0.06 percent, at 13,352.81. The Standard & Poor's 500 Index was up 3.47 points, or 0.24 percent, at 1,436.03. The Nasdaq Composite Index was up 3.76 points, or 0.12 percent, at 3,055.55.
Apple was down 1.6 percent after a U.S. appeals court overturned a preliminary injunction on the sale of Samsung Electronics Co Ltd's Galaxy Nexus smartphone.
Shares of Sprint Nextel Corp drew the heaviest action on the New York Stock Exchange after news that the firm was in talks over a potential sale to Japanese mobile carrier Softbank Corp.
Sprint was up 13 percent.
In Europe, the FTSEurofirst 300 ended up 0.8 percent, while the MSCI global index gained 0.4 percent.