* BOJ expands bond buying by 10 trln yen, ups ETF buying
* Traders doubt BOJ move leads to sustainable fall in yen
* Spain hit by two-notch downgrade by S&P
* Euro briefly sheds 60 pips after Spanish downgrade
* Eye on Shirakawa, Italian bond auction, Spanish debt mkt
TOKYO, April 27 (Reuters) - The yen slipped on Friday after the Bank ofJapan eased monetary policy, going slightly beyond market expectations in its much-awaited easing steps, while the euro was bruised after Standard & Poor's hit Spain with a two-notch credit rating downgrade.
The Bank of Japan increased bond buying by 10 trillion yen, expanded the target of its bond purchase to bonds with up to three years left to maturity from those with two years or less now and also increased its buying of stock ETFs.
"I think the BOJ did pretty well this time in finding the narrow path of not disappointing the markets. It wasn't a big surprise overall, though its decision to boost ETFs may have done some trick," said Ayako Sera, senior market economist at Mitsui Sumitomo Trust Bank.
The dollar rose to as high as 81.45 yen from below 81 yen on the BOJ's news before giving up some of gains to trade at 81.20 yen.
The dollar's high of 81.78 yen last week is a next possible target, though some traders also said the BOJ's easing was no bazooka that would push it beyond its 11-month peak of 84.187 hit last month.
"Basically we all know that the BOJ, the Fed and the ECB have no choice but to print more money as lender of last resort. I see the dollar stuck in a range this quarter, around 80-84 yen," said Hideki Amikura, forex manager at Nomura Trust and Banking.
Traders say the dollar has strong support from the cloud top of its weekly Ichimoku charts at 80.42. Another pivotal point will be 80.10, a 50 percent retracement of its rally from February to March.
For now the market is focusing on BOJ Governor Masaaki Shirakawa's news conference, which is expected to finish at around 4:15 p.m. (0715 GMT).
SPAIN DOWNGRADES
The euro briefly skidded to $1.31766 from around $1.3240 late in New York, after Standard & Poor's cut its credit rating on Spain to BBB-plus from A and gave it a negative outlook, warning it expects the government's budget deficit to deteriorate even more than previously thought due to economic contraction.
"This could boost Spanish bond yields again later today to above the six percent mark. The euro could fall further during the European session," said a trader at a Japanese bank.
The market is also looking at debt auction by Italy later in the day. Rome will sell up to 6.25 billion euros of bonds. The market is pinning its hopes on support from domestic banks, which has helped Italy push auctions through even when spiralling concerns last November threatened to tip the country into a Greek-style debt crisis.
The euro last stood at $1.3189, off a three-week high of $1.32635 hit on Thursday.
S&P also affirmed its BBB-plus rating for Ireland but said its negative outlook meant there is a one-in-three chance it could cut the rating in 2012 or 2013.
With the euro under renewed pressure, the dollar index popped up to 79.172, from a 3-1/2-week low of 78.823 plumbed on Thursday.
The Aussie last traded at $1.0360, having slipped from Thursday's session high of $1.0399 in sympathy with the euro's decline.
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