Did you try just putting something like
\spaceskip .5em plus .25em minus .25em
somewhere at the beginning of your document? Short explanation:
\spaceskip is (low-level) TeX parameter responsible exactly for that.
Edit: Notice that
em depends on the current font, so you should first set the font (e.g. by
\setupbodyfont) and only then issue the above command.
Also, strangely enough, after skimming through the ConTeXt (MkIV) sources, it seems to me that ConTeXt does not have a high-level interface for that (
\setraggedskips is not what I'd call a "high-level" interface). This has a benefit of making me quite sure that nothing (e.g. in
\starttext) is going to change
Edit: as egreg points out in the comments, changing
\spaceskip is probably a bad idea; it might be better to use
\emergencystretch, which (in case TeX cannot typeset a paragraph within its "badness" limits, even with hyphenation) is added to the "stretch" compoment of
\spaceskip, so it is considered only, well, in emergency (bibliographies or twocolumn layout are two examples when one might want to use it - sparingly, of course!).
Notice that there is also
\xspaceskip, which has a similar application as
\spaceskip, but TeX uses it at the end of the sentence (unless
\frenchspacing is in use).