FOREX-Dollar rises vs euro, supported by risk aversion

* Dollar rises vs euro as risk aversion persists

* Yen supported on persistent global economy fears

* Euro zone inflation plunges (Recasts, adds comments, changes dateline and byline)

By Vivianne Rodrigues

NEW YORK, Nov 28 (Reuters) - The dollar rose against the euro on thin trade on Friday, as weak equities markets and fears of a deepening global recession led investors to seek the U.S. currency as a haven.

Worries about consumer spending helped weigh on U.S. and European shares, while the low-yielding yen gained ground.

Extreme risk aversion and repatriation flows have been supporting the U.S. currency recently.

The euro weakened against the yen and sterling on growing expectations that slowing euro zone inflation may lead the European Central Bank to cut interest rates more aggressively next week from the current benchmark rate of 3.25 percent.

Trading volumes were lower than usual as U.S. markets reopened for only half a day after Thanksgiving Holiday.

"Trading is very thin, with the dollar getting support from a drop in global equities and fear the start of this shopping season is going to be really bad," said Greg Salvaggio, a currency trader at Tempus Consulting in Washington D.C. "Euro/dollar is going to be stuck in a narrow trading range between 1.26 and 1.30 for now."

In mid-morning trading in New York, the euro was 1.1 percent lower at $1.2746 , while the dollar was up 0.7 percent against a basket of six currencies at 86.378 .DXY.

Some traders also mentioned sizable month-end dollar buy-orders at the London (1600 GMT) currency fixing was adding support to the U.S. unit.

Political jitters may also have helped the dollar after militants killed more than 100 people in Mumbai, India's financial center, in coordinated attacks. For details, see [ID:nLR648031]

"It's another 'negative' looming in the markets," said Salvaggio. "It may also be giving a bit of a lift to Treasuries and the dollar this morning."

Looking ahead to next week, markets were bracing for interest rate decisions by several central banks next week, including the Bank of England, the ECB, the Reserve Bank of Australia and the Reserve Bank of New Zealand.

Provisional figures showed euro-zone annual inflation slowed to 2.1 percent in November from 3.2 percent in October. [ID:nBFA000814]

"The ECB seems to be lagging behind the curve. Now that the region has officially hit a recession, it is possible that they will be more aggressive in easing rates," said Kathy Lien, director for currency research at GFT Forex in New York.

"The only factor holding them back is inflation pressures. Although producer and consumer prices have been easing, the central bank is not entirely convinced that the upside risks to prices have alleviated," she added.

The euro dropped 1.2 percent to 121.58 yen , while the dollar was little changed at 95.42 yen .

For the UK, economists polled by Reuters on Thursday expect the BoE will follow up November's 150 basis point interest rate cut with at least a 50 point reduction when it meets next week.

"The Bank of England has been the most aggressive and proactive of the G-10 central banks in their attempts to ease monetary policy," Lien said. "With the economy in a recession according to UK officials, interest rates could fall as low as 1 percent if the crisis continues well into the New Year. (Additional reporting by Veronica Brown and Jessica Mortimer in London; Editing by Tom Hals)

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