* Dollar index down 0.3 percent at 85.523 * Firmer shares reflect easing risk aversion
* Recession fears remain, seen dlr, yen supportive
* Mumbai attacks unleash geopolitical fears
(changes dateline, byline, adds quotes, updates prices, PVS TOKYO)
By Veronica Brown
LONDON, Nov 28 (Reuters) - The dollar lost traction against major currencies on Friday as a slightly brighter environment for shares reflected a pause from the recent rush to cut exposure to risk.
World stocks, as measured by MSCI's all-country index, have gained 11.6 percent so far this week with investors stepping gingerly into the market.
But the dollar and yen, major beneficiaries of deleveraging flows, still looked to be well supported going forward as fears over the length and depth of a global recession kept investors on edge.
"The phase of dollar strength that we've seen since the beginning of the crisis seems to be going through a pause in the context of a slightly better stock market environment," said Audrey Childe-Freeman, senior currency strategist at Brown Brothers Harriman in London.
"There's still a lot of risk around however," she added.
Japanese industrial production slid more than expected in October and manufacturers warned of record cuts ahead, in bleak news that pointed to more trouble for an economy already in recession.
Meanwhile a flash estimate of euro zone inflation is expected to show inflation slowing to 2.3 percent on the year in November from 3.2 percent previously.
Political risk also stayed on radar screens after militants killed more than 100 people in Mumbai, India's financial centre, in coordinated attacks.
By 0854 GMT, the dollar was 0.3 percent lower against a basket of six major currencies at 85.523, while the euro rose 0.2 percent to $1.2915.
The single currency was broadly flat at 123.00 yen, while the dollar dipped 0.1 percent to 95.22 yen.
Activity was slow and trading ranges tight before U.S. markets reopen later in the day after the Thanksgiving holiday.
MORE RATE CUTS EYED
Looking ahead to next week, market participants were bracing for interest rate decisions by several central banks next week, including the Bank of England, the European Central Bank, the Reserve Bank of Australia and the Reserve Bank of New Zealand.
The question is whether any of them will surprise with bold rate cuts.
Calyon strategists said in a note to clients that while European sentiment continued to point to weak growth, the ECB had scope to cut its borrowing costs aggressively next Thursday from the current 3.25 percent.
"We still suspect that the Governing Council will plump for a 50 basis point cut next week, suggesting that policy disappointment could weigh on the euro toward the end of next week," they added.
For the UK, economists polled by Reuters on Thursday expect the BoE will follow up November's shocking 150 basis point interest rate cut with at least a 50 point chop when it meets next week
(Reporting by Veronica Brown; Editing by Victoria Main)