* Spain's economy minister says euro in no danger
* Says in very different situation to Greece
* IMF chief: Spain in difficult position, must act
* Spanish bond auction goes relatively smoothly
(Adds quotes, criticism of foreign analysts)
By Jason Webb
MADRID, Feb 4 (Reuters) - Spanish Economy Minister Elena Salgado said on Thursday she saw no risk to the euro zone and said foreign analysts homing in on Spain's travails misunderstood the role of the single currency in its economy.
"The euro is a very strong currency and we will continue to strengthen the currency. I certainly do not see any risk for the euro zone," she told radio station La Cope, adding that her country's situation was very different to that of Greece.
Asked about comments by Nobel Prize-winning economist Paul Krugman, who identified Spain as the euro zone's biggest trouble spot in a blog entry on Tuesday, Salgado responded by saying that analysts and media from outside the euro zone did not understand how the bloc worked.
"Maybe there is a lack of comprehension about what the euro means for our economies," she said.
Krugman argued that Spain was more of a problem to the single currency than Greece, despite its lower ratio of public debt to gross domestic product. This is because of the scale of Spain's economic collapse in the downturn, which has sent unemployment close to 20 percent.
"Underlying that collapse is the real problem with the euro: the one-size-fits-all monetary policy, which offers no relief to countries that suffer adverse shocks," Krugman wrote.
Spain has a credibility problem with debt markets as economists doubt economic forecasts for about 3 percent growth by 2012 on which the government has based its fiscal deficit projections.
However, Spain sold 2.5 billion euros of three-year bonds in a generally well-received auction on Thursday which was seen as a test of market appetite for lower-rated euro area debt. [ID:nLDE6130XS]
"This should quell some jitters in the Spanish market, but proof that Spain can issue debt will still leave Greece and Portugal under pressure as they have much less liquid secondary markets," said Calyon strategist Peter Chatwell.
The yield spreads between Spanish bonds and euro zone benchmark German bunds narrowed after the auction, to trade near flat on the day. [ID:nL9934677]
Markets fear the country faces long stagnation as it struggles with a relatively high euro exchange rate, high stocks of private sector debt and the vacuum left in its economy by the end of a property boom.
The country's image took another blow on Wednesday when the government floated a move that would effectively reduce pensions and then just hours later put out a communique saying it was only an idea and not a firm proposal. [ID:nLDE6122Q0]
Madrid also raised forecasts for budget deficits in coming years, although it repeated its promise to cut the shortfall to the European limit of 3 percent of GDP by 2013 from 11.4 percent in 2009.
The head of the IMF said Spanish Prime Minister Jose Luis Rodriguez Zapatero faced a difficult situation over pension reform but needed to act decisively.
"The crisis in Spain is very deep, notably because of the property situation," International Monetary Fund Managing Director Dominique Strauss-Kahn told France's RTL radio. "But the Spanish really need to make a considerable effort." (Reporting by Jason Webb, editing by Mike Peacock and Toby Chopra)