* Yen gains, global recession fears keep investors on edge
* Dollar dips, U.S. balance sheet concerns weigh
* Mumbai attacks feed into risk aversion
* U.S. Thanksgiving holiday thins trade
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By Veronica Brown
LONDON, Nov 27 (Reuters) - The yen gained against the dollar and euro on Thursday, as worries about the cost of fiscal stimulus packages and whether they would succeed in limiting a global recession kept the low-yielding currency supported.
The dollar, normally a beneficiary of risk-averse sentiment, eased against a basket of major currencies as concern over the weak U.S. economy and the impact of fiscal stimulus measures on the nation's balance sheet weighed.
Major currencies were confined to tight ranges however and liquidity was lighter than usual due to the U.S. Thanksgiving holiday.
Some dealers also said attacks in Mumbai overnight which claimed over 100 lives heightened geopolitical fears, feeding into risk-reduction trades which benefitted the yen. [ID:nLR612199]
Traders also cited talk of repatriation flows from Japanese life insurers, giving a boost to the Japanese currency.
Real economy pain was never far away, with German data showing a 3-1/2 year labour market boom is fading as recession bites [nLR241745].
Germany is also set to tell the European Union it will record a budget deficit of 0.5 percent of gross domestic product (GDP) next year, and post a shortfall of 1.5 pct in 2010, a finance ministry source said [nBAT002542].
"Fundamentally the market is still thinking about risk aversion. We're not seeing any reasons for changes in the market paradigm and structure," UBS currency strategist Geoffrey Yu said.
By 1154 GMT, the dollar had fallen 0.3 percent against the yen
The euro was broadly steady against the dollar
U.S. FUNDING WORRY
Investors were continuing to digest Tuesday's $800 billion stimulus plan in the U.S. to support mortgage and other debt markets, as well as Europe's plan for a 200 billion euro package announced Wednesday.
The yield on 10-year U.S. Treasury bonds fell on Wednesday below 3 percent to their lowest in half a century after another raft of dismal economic reports drew investor into bonds.
Data on Wednesday showed U.S. consumer spending in October posted its biggest drop in more than seven years, consumer confidence fell to a 28-year low, durable goods orders plunged and the Chicago purchasing managers' index hit its lowest level since 1982.
But European shares .FTEU3 rose 2 percent, following Wall Street and Asian markets overnight. The optimism from equity markets on the global fiscal and monetary steps to steer economies through the current storm failed to feed through into currency markets, however.
Although deleveraging and repatriation flows have been providing support for the dollar recently, there are worries over the medium-term outlook for the currency given the very aggressive U.S. fiscal expansion.
"The potential deterioration in the U.S. fiscal position is increasing concern over the risks for the dollar and the yen is increasingly the safe-haven currency of choice," BTM-UFJ currency strategist Lee Hardman said.
(Additional reporting by Jessica Mortimer in London)
(Reporting by Veronica Brown; Editing by Victoria Main)
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