FOREX-Euro down after four days of gains as Spain weighs

* Euro falls as Greece worries, regional Spain vote weigh

* Close below 55-day avg at $1.4301 may spark more falls

* Digital option expiry at $1.4360 to influence trade

(Updates prices, adds quote, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 20 (Reuters) - The euro fell against the U.S. dollar on Friday after four straight days of gains, on worries about the outcome of Spain's regional elections this weekend and an uncertain Greek debt situation.

Traders said the market will be focused on Friday's close for the euro, which has ended each day higher this week. A close below Thursday's would stall the euro's retracement rally from the seven-week low hit last Monday, suggesting the market may have seen the top in the single currency for now.

"We're having a little Spanish angst ahead of the local election. People are a little bit concerned that the new government that will come in will expose the skeletons of the supposedly outgoing administration," said Greg Anderson, senior currency strategist, at CitiFX in New York.

Spain's Socialist government, faces major losses to the center-right opposition Popular Party and analysts are wary that there could be the potential for unearthing of unknown financial problems. [ID:nLDE74F1GL]

In early New York trading, the euro was last at $1.4169 , down 1 percent on trading platform EBS, although on the week it was still up 0.6 percent. It hit a session low of $1.4161 after earlier hitting a session high at $1.4345.

A weekly close below the euro's 55-day average around $1.4301 could push it toward that seven-week trough at $1.4048.

Trading may also be influenced by a large $1.4360 digital option for expiry on Monday, with euro/dollar needing to hold below that level for a payout.

In line with euro weakness, the spread between peripheral bonds and German Bunds widened on Friday. The Spain/Bund 10-year yield spread traded at its widest since mid-January at around 239 basis points, up 11 basis points a day after a lackluster Spanish bond auction.

The Greece debt crisis remains a prominent background factor in the market, with the European Central Bank firm in its opposition to a debt restructuring. The ECB notes that the country can pay back its debt by sticking to the EU/IMF plan without resorting to a restructuring.

ECB Governing Council member Marko Kranjec said as much on Friday, adding that he knew of no discussion from any country ever having wanted to exit the euro. See [ID:nF9E7GJ000].

The 10-year Greek/German yield spread expanded nevertheless by about 58 basis points.

The euro also gave ground gains against the yen, to trade 0.3 percent down on the day at 116.41 yen , although it stayed well above a recent two-month low near 113.40 yen.

The dollar <.DXY> recovered earlier falls to trade up 0.3 percent at 75.345 against a basket of currencies, though it stayed below its recent peak of 76.00 struck earlier this week.

"Our preference is that the dollar index slowly sinks to 74.40, or a 1 percent drop From current levels, but technical buying will no doubt emerge there," said Chris Turner, head of FX strategy at ING.

The dollar was up 0.1 percent at 81.70 yen . Traders cited talk of dollar bids from Japanese retail traders near 81.30 yen, while some offers from such household investors were said to be lurking at 81.80 yen and above.

The Bank of Japan kept policy unchanged, holding interest rates steady in a zero to 0.1 percent range on Friday. But in surprise move, Deputy Governor Kiyohiko Nishimura dropped a proposal to loosen policy further. [ID:nL4E7GK04E]

(Additional reporting by Jessica Mortimer in London) (Editing by Theodore d'Afflisio)