* Euro lifted by good demand at Spain's auction
* Short-covering may lift euro, but debt worries remain
* ECB's Draghi says downside risks have increased
* Strong U.S. ISM number adds to U.S. recovery hopes (Updates prices, adds quote, U.S. data)
NEW YORK (Frankfurt: A0DKRK - news) , Dec 1 (Reuters) - The euro rose for a fourth straight session against the dollar on Thursday, bolstered by generally successful Spanish and French debt auctions, although traders were inclined to view its gains as good selling opportunities.
Spain sold 3.75 billion euros of three bonds at the top of the targeted range, although its borrowing cost was the highest in 14 years and at levels seen as unsustainable for public finances. France also found demand for its sale of 4.35 billion euros of debt in several maturities. [ID:nL5E7N11J2]
The euro's gains have dissipated a bit in midday trading as stocks turned mostly negative, with traders saying investors are consolidating their positions ahead of Friday's all-important U.S. non-farm payrolls report.
"We have had some big moves in the euro the last couple of days and a lot of event risks so the market is taking a little bit of a breather and consolidating their gains before tomorrow's big U.S. employment number," said Steven Butler, director of foreign-exchange trading at Scotia Capital in Toronto.
Investors are looking at 122,000 new jobs added to the U.S. economy last month and a steady unemployment rate of 9.0 percent. A higher-than-expected number could whet risk appetite once again and lift risk-friendly currencies such as the euro.
The euro was last up 0.3 percent at $1.34811.
Traders said news that the International Monetary Fund will likely cut its global growth forecasts in late January took the steam out of the rally in risky assets. For the IMF (Berlin: MXG1.BE - news) story, click on [ID:nW1E7MS00Q].
On Wednesday, the euro had hit a one-week high of $1.35337 on trading platform EBS after central banks of the United States and the euro zone, as well as Canada, Britain, Japan (EUREX: FMJP.EX - news) and Switzerland cut the cost of dollar loans to the banking system. [ID:nL5E7MU118]
The euro also rose to a two-week high against the yen
A break above $1.3533 though could see the euro rise toward its Nov. 18 high of $1.3615, analysts said. If it fails to retest Wednesday's high, however, the rally may peter out.
An increase in the Institute for Supply Management's U.S. manufacturing index for November (Stuttgart: A0Z24E - news) to 52.7 pushed the euro up against the dollar above $1.35 earlier as it increased the market's appetite for risk and reinforced the view that the world's largest economy is on a stable path to recovery. For the data, click on [ID:nN1E7B008U].
In midday trading, the dollar index was down 0.1 percent at 78.277, though off the 77.923 low hit on Wednesday.
Shaun Osborne, chief currency strategist at TD Securities in Toronto, said hints from French President Nicolas Sarkozy about considerable progress on fiscal integration within the euro zone could see a push toward $1.3554 in the euro. He added, though, that the market's strategy remained selling the euro on any significant rally.
Many analysts are awaiting Sarkozy's speech on the euro- zone crisis at around 12:30 p.m. (1730 GMT) for an update as to what euro-zone policy-makers have planned to prevent the crisis from spreading to other healthier economies in the region.
On Thursday, European Central Bank President Mario Draghi highlighted the euro zone's fragile outlook, saying downside risks to the economy have increased and that the bank's temporary measures are only limited. For more click on [ID:nF9E7LQ00L], [ID:nL5E7MU5LM].
That reinforced a market view that the ECB could cut interest rates and extend its liquidity measures when it meets to decide on monetary policy next week -- and this could well negate the euro's rally.
More important for markets will be whether European leaders are able to agree on a comprehensive solution to tackle the debt crisis at a European Union summit on Dec. 9. (Editing by Jan Paschal)
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