* Yen gains as global recession fears keep investors on edge
* Mumbai attacks add to risk aversion
* Market quiet due to U.S. Thanksgiving holiday
* Dollar dips vs euro; U.S. balance sheet concerns weigh
(Recasts, changes byline, adds quotes, previous TOKYO)
By Jessica Mortimer
LONDON, Nov 27 (Reuters) - The yen gained against the dollar and euro on Thursday as market worries about the cost of fiscal stimulus packages and how far they could succeed in fending off a global recession kept the low-yielding currency supported.
The dollar dipped broadly as worries over the weak U.S. economy and the impact of these measures on the nation's balance sheet weighed, though currencies were confined to tight ranges and liquidity was lighter than usual due to the U.S. Thanksgiving holiday.
The 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.
"The underlying conditions are still conducive for lower-yielding currencies to outperform," BTM-UFJ currency analyst Lee Hardman said.
"Clearly the global economy is heading for a very sharp recession and the yen is well placed to gain," he said.
CMC Markets chief market strategist Ashraf Laidi said the events in Mumbai earlier had an impact on the yen.
"The Japanese yen began to creep higher against all currencies during the Thursday Asian session as the crisis unfolded into hostage standoffs in several areas in Mumbai and the death toll surpassed the 100 mark," he said in a note to clients.
At 0910 GMT, the dollar fell 0.4 percent against the yen to 95.17 while the euro dropped 0.2 percent to 122.98 .
The euro was up 0.2 percent against the dollar at $1.2914.
U.S. FUNDING CONCERNS
Markets continue 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 rose 1.5 percent in early trade, 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.
Investors remained risk averse, with higher-yielding currencies such as the Australian and New Zealand dollars coming under pressure.
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's Hardman said.
(Reporting by Jessica Mortimer; Editing by Ruth Pitchford)