* Gold down 1 percent but steady in euro terms
* Dollar hits fresh two-month highs vs euro on debt crisis
* Portugal adopts budget, denies bailout pressure
(Updates prices, adds quote)
By Elizabeth Fullerton
LONDON, Nov 26 (Reuters) - Gold fell more than 1 percent on
Friday as the dollar pushed to fresh two-month highs against the
euro on worries that Ireland's debt crisis would spread and on
growing speculation of an imminent Portuguese bailout.
However, gold was underpinned by some modest safe haven
buying amid investor nervousness over the European debt crisis
after a newspaper report that euro zone nations were pressuring
Portugal to follow Ireland's lead and seek a bailout.
Portugal and Germany's finance ministry denied the report.
[]
Spot gold <XAU=> was trading 1.26 percent lower at $1,356.6
an ounce by 1523 GMT, off an intraday low of $1,350.27. Gold
futures <GCZO> were down around the same amount at $1,355.9.
Trade was thin following the U.S. Thanksgiving holiday.
"Investors are eyeing a strengthening dollar and see no
reason to hold gold in a strengthening dollar environment," said
David Wilson, analyst at Societe Generale.
Gold's traditional inverse relation to the U.S. dollar broke
down in May this year when the euro zone's debt problems became
apparent, prompting investors to dump the single European
currency, but the dynamic has since reasserted itself.
In euro terms <XAUEUR=R>, gold was easier at 1,023.05 euros
an ounce compared with 1,028.76 euros late on Thursday, but
still firmly above the 1,000 euros mark it broke through on
Monday for the first time in a week.
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For graphic on gold priced in different currencies:
http://r.reuters.com/hyv37q
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EURO WOES
"Gold's still holding well on the crosses which is the
important thing at the moment. I think it's just drifting in
thin quiet Friday conditions as the currency markets move," said
Simon Weeks, a trader at Scotiamocatta.
The euro <EUR=> fell to a fresh two-month low of $1.3200
against a resurgent dollar <USD/> in European trade, while the
Spanish/German 10-year bond yield rose to a euro lifetime-high
as the market focused on the possibility of Ireland's debt
crisis being replicated in Spain and Portugal.
Portugal's parliament on Friday approved the final 2011
budget, aimed at sharply reducing the fiscal deficit. Meanwhile,
Spain's Prime Minister Jose Luis Rodriguez Zapatero ruled out a
Spanish bailout in the footsteps of Greece and Ireland.
[]
A stark warning by North Korea following its shelling of the
South earlier this week added to an uncertain geopolitical
picture which could lend gold some support from more risk-averse
investors.
North Korea said on Friday that impending military exercises
by the South and the United States were pushing the region
towards war. []
"Precious metals are caught between buyers who see them as a
hedge against Korean tension and European sovereign debt
problems, while others have been selling it on the back of the
continued dollar rally," said Ole Hansen, analyst at Saxo Bank.
Ashraf Laidi, chief market strategist at CMC Markets, said
in a report that the prospect of a likely Chinese rate hike was
limiting gold's ability to exploit its position as a safe haven
from the Korean tensions and European debt crisis.
"One of the main differences between today and February-May
(during the Greek debt crisis) is that the role of the Chinese
tightening stands in the way of any prolonged gold buying," he
said, noting that demand for commodities was broadly affected.
China is the world's second-biggest gold consumer after
India and the biggest consumer of base metals and investors are
concerned that one or more rate hikes to dampen rising Chinese
inflation could hit demand for the commodities.
The rest of the precious metals complex was also weaker.
Silver <XAG=> fell 2.3 percent to $26.88 from $27.54 late on
Thursday, platinum <XPT=> shed 1 percent to $1,640 an ounce and
palladium <XPD=> was down 1.9 percent at $682.
(Editing by Keiron Henderson)
