FOREX-Euro slips for a 2nd day vs dollar as Spain weighs

(Updates prices, adds comment)

* Spanish stocks fall, weighing on euro

* Markets bracing for Spanish bond auction on Thursday

* Sterling rises to 19-mth high vs euro after BoE minutes

* Yen weakens for a second day vs dollar, euro

By Gertrude Chavez-Dreyfuss

NEW YORK, April 18 (Reuters) - The euro fell for a second straight session on Wednesday as euro-zone debt worries mounted one day ahead of a bond sale in Spain, seen as a test of Madrid's capacity to grapple with financial and budgetary pressures.

Spain is the fourth largest euro-zone economy, and some investors worry its financing troubles could lead to problems in healthier economies in the region.

The euro was further pressured by a rise in sterling, which posted the biggest gains among the major currencies. The British pound rallied after minutes showed the Bank of England expressed concern that high inflation could persist into the medium term. One BoE policymaker, for instance, dropped his long-standing call for more stimulus.

The fall in Spanish shares also weighed on the euro. Some strategists said comments from European Central Bank policymaker Jens Weidmann that countries should not expect the central bank to tackle rising debt yields by buying government bonds prompted the weakness in stocks.

"Spain right now has a liquidity problem, but it's not yet a solvency problem," said Dan Dorrow, head of research at Faros Trading in Stamford, Connecticut.

"Tomorrow's Spanish auction is a key driver, and it's a tough call. Spain needs to be financed by another $50 billion as of the balance of this year, and the key thing is, can they maintain market access?"

Spain will auction up to 2.5 billion euros of 2014 and 2022 bonds on Thursday. Any evidence of poor demand, and high yields, at the auction would aggravate concerns about Spain's fragile fiscal position.

Spain projects its economy will contract 1.7 percent this year as it compresses domestic demand to wrestle its budget deficit down to 5.3 percent of gross domestic product from 8.5 percent in 2011.

Data showing bad loans at Spanish banks rose to their highest level since 1994 also spooked investors.

Banks are facing a new wave of loan defaults, and analysts say some banks may not survive as the government implements sweeping budget cuts that add to the problems of Spanish households in repaying debt.

EURO STAYS IN RANGE

In midday New York trading, the euro slipped 0.1 percent against the dollar to $1.3111, recovering on corporate buying, traders said. The euro last week briefly hit a two-month low of $1.2994.

The euro's intraday bias against the dollar, however, remains neutral for now, analysts at ActionForex.com said, given that it has stayed within the $1.2994-$1.3212 range. But ActionForex said a fall below $1.2994 will extend the decline from the $1.3486 multi-month high hit in February to the $1.2625 low struck in mid-January.

A break of $1.3212, however, suggests that the choppy decline from $1.3486 is merely a correction and is now complete, the analysts said. ActionForex said the bias will then revert to possible gains to $1.3385 and an eventual re-test of that $1.3486 peak.

The euro has struggled to rise above $1.32 since early April. CitiFX Wire said in a note that its traders were looking to buy the range-bound currency on dips.

Traders also cited selling by Swiss investors after French President Nicholas Sarkozy said a strong euro hurt exporters and that the euro's exchange rate should be up for discussion with the European Central Bank.

The euro fell 0.7 percent against the pound to 81.80 pence, its lowest level in 19 months and below reported options barriers at 82 pence.

Against the Swiss franc, the euro was up slightly at 1.2018 francs. Market participants were on the alert for any action from the Swiss National Bank to weaken the franc.

Foreign exchange traders earlier cited talk that the SNB was checking forward rates on the Swiss franc on Wednesday, which some saw as a signal that policymakers are determined to enforce their cap on the franc at 1.20 per euro..

Meanwhile, the Swedish crown rose to a two-week high against the euro of 8.8325 crowns after the Riksbank left rates on hold and said it expected to keep them there for at least a year.

YEN FALTERS

The dollar rose 0.5 percent against the yen to 81.28 yen. The euro traded up 0.4 percent on the day at 106.57 yen, holding above Monday's low of 104.62 yen.

The yen weakened further after Bank of Japan deputy governor Kiyohiko Nishimura said on Wednesday the central bank was ready to ease policy further if necessary to help Japan's economy recover.

In recent weeks there has been a growing perception in the market that the Federal Reserve may not hint at further easing at its April 24-25 meeting, in contrast to expectations the Bank of Japan will take fresh policy easing steps on April 27.

Some analysts, however, said the market was pricing in further easing too aggressively, opening the door to a rebound in the yen. (Editing by Padraic Cassidy)