* Worries about Greece euro exit, banking sector dent euro * Euro hits 4-month low vs firmer dollar, 3-month low vs yen * Spain's Bankia shares tumble, talk of possible downgrades By Philip Baillie LONDON, May 17 (Reuters) - The euro slid to a four-month low against the dollar on Thursday and was expected to remain under pressure as concerns grow about problems facing some periphery euro zone banks and the prospect of contagion if Greece exits the euro. Growing aversion to risk drove investors towards the safety of the U.S. dollar, which rose to a four-month high against a basket of currencies, while the euro also dropped to a three-month low versus the yen. Talk of possible Spanish bank downgrades pushed European equities sharply lower. Shares in Spanish lender Bankia fell more than 20 percent following a report in the El Mundo newspaper that its customers had withdrawn more than 1 billion euros from their accounts over the past week. This followed news on Wednesday that the European Central Bank had stopped providing liquidity to some Greek banks because they had not been successfully recapitalised. Investors were increasingly worried that Greece could leave the euro following a second election to be held on June 17 as voters looked likely to opt for parties opposed to the terms of its international bailout. The euro dropped to $1.2667, its lowest level since mid-January, past stop-loss sell orders below $1.2680 and on course for a test of its 2012 low of $1.2624. "If we get a bad outcome (from the second election) then the probability of Greece leaving increases, which could lead to a sell-off of the Euro, trading to a target of around $1.15," said Geoff Kendrick, strategist at Nomura. Higher yields for Spain at an otherwise well-received bond auction on Thursday reinforced concerns that its borrowing costs may become unsustainable as markets worry that the crisis could spread to other indebted euro zone countries. Data on Thursday showed Spain contracted by 0.3 percent in the first quarter, putting it firmly in recession after it shrank by the same pace in the fourth quarter. The dollar index climbed to a four-month high of 81.682 as investors sought safety, while the euro also fell to 101.59 yen on trading platform EBS, its weakest since mid-February. FED QE TALK But some analysts said the dollar's gains could be checked after minutes of the Fed's April meeting revealed that policymakers thought the U.S. central bank might need to do more to support the economy if the recovery stumbles. Some also said the euro may rebound as the market has already priced in much of the risk surrounding Greece, even though most market commentators predict the euro's slide will continue. "We wouldn't be surprised to see the euro/dollar going back to $1.30 and stay within the same range within three months - we are pretty much at the bottom of the range," said Pierre Lequeux, head of currency management at Aviva Investors. "Perhaps it could drop to $1.25 if Greece is given the red card by Europe," he said. He added, however, that a Greek exit may be priced in already and pointed out that the euro has traded in a relatively narrow range since January. Investors and speculators have built huge bearish positions against the euro since the start of the month after an inconclusive Greek election left the country on the road to bankruptcy and a possible chaotic exit from the euro zone. Traders' skittishness towards the euro was visible in options markets, where one-month euro/dollar implied volatility traded close to the 2-1/2-month high hit on Wednesday at 11.30 percent. The dollar was steady against the yen at 80.25 yen, not far from a two-week high of 80.56.

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