* Risk sentiment, trade choppy after mixed global data
* European stocks rise but Wall Street slips
* Japanese election, soft data weigh on yen (Updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Aug 28 (Reuters) - The dollar edged up against the yen and euro in light trade on Friday as mixed economic reports from around the world left traders guessing about how the underlying health of the global economy.
Data showing Japanese deflation and unemployment at record levels and a sharp slide in household spending kept the yen under pressure two days ahead of Japan's general election.
European shares closed at a 10-month closing high, while a rise in oil prices helped lift the Australian dollar to a two-week high, as did expectations that Australian interest rates will rise by year end.
But the euro struggled along with U.S. stocks, which dipped after data showed U.S. consumer confidence fell to its lowest level in four months, sewing doubt about a U.S. recovery.
"My biggest fear is that it doesn't matter how optimistic consumers are if they don't have jobs or money to spend," said Dan Cook, senior analyst at IG Markets in Chicago.
He said markets now realize that expectations for recovery have outstripped supporting evidence and said he anticipates the dollar "will come back strong as a safe-haven play."
"September's going to give us a smack down from this risk play," he said. "We've run so far, so fast, it's not a matter of if, it's a matter of when we see a good-sized correction."
The dollar rose 0.1 percent to 93.58 yen while the euro was up 0.1 percent at 134.16 yen. It was down about 0.1 percent at $1.4339.
The dollar tends to rise along with risk aversion because investors buy it as a safe haven or exit trades that had been financed with cheap dollars.
The yen has acted in similar fashion, though on Friday, investors said weak Japanese data and Sunday's election, expected to produce a landslide opposition victory, was weighing on the currency.
Sterling drew support from data that showed the UK economy contracted at a slightly slower pace than previously thought and was last up 0.2 percent a $1.6296.
The Australian currency was up 0.2 percent at $0.8420 after rising to a two-week high of US$0.8464.
Relatively strong domestic economic data and hawkish comments from central bank policymakers have prompted a shift in market expectations of when the central bank will hike rates to November from December.
Separate U.S. data showed consumer spending rose as expected in July abut incomes remained flat.
Trading conditions remained light as they have all week, with many desks thinly staffed for summer vacation, analysts said. Many added that next week should provide a better gauge of the economic situation, with a reports on U.S. manufacturing and service sector activity and employment due.
Policy decisions from several central banks, including the European Central Bank, are also on the calendar.