* 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
(updates prices)
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 said attacks in Mumbai overnight which claimed over 100 lives
heightened geopolitical fears, feeding into risk-reduction trades which
benefitted the yen. []
Traders also cited talk of repatriation flows from Japanese life insurers,
giving a boost to the Japanese currency.
"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.
Real economy pain was never far away, with German data showing a 3-1/2 year
labour market boom is fading as recession bites [].
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 [].
By 1500 GMT, the dollar had fallen 0.2 percent against the yen <JPY=> to
95.41, while the euro dropped 0.2 percent to 123.00 yen <EURJPY=>.
The euro was steady against the dollar <EUR=> at $1.2888, while the dollar
dropped 0.1 percent versus a basket of currencies to 85.671 <.DXY>.
Currency movements were small, however, with most investors choosing to stay
on the sidelines during the U.S. holiday.
"We're seeing a market very much in a consolidation trading mode and the
ranges are very similar to those seen recently," Brown Brothers Harriman
currency analyst Audrey Childe-Freeman said.
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.
But European shares <> gained 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 Toby Chopra)
