* Equities slip, dollar climbs on European banking jitters
* Steady demand expected from India over festival period
* Palladium seen outpacing gains in platinum
(Releads, updates prices)
By Jan Harvey
LONDON, Sept 7 (Reuters) - Gold slipped in Europe on Tuesday
as the dollar rose 1 percent against the euro amid reemerging
concerns over the European banking sector and the pace of
economic growth.
The precious metal is often bought as a haven from risk, but
this factor was being undermined by the U.S. currency's
strength, analysts said. Trading was also muted ahead of the
return of the U.S. markets after Monday's Labor Day holiday.
Spot gold <XAU=> was bid at $1,246.25 an ounce at 1115 GMT,
against $1,249.55 late in New York on Monday. U.S. gold futures
for December delivery <GCZ0> fell $3.10 to $1,248.00.
Equities slipped, German government bonds rose and the
dollar climbed after a Wall Street Journal report said Europe's
recent "stress tests" of major banks underestimated some
lenders' holdings of potentially risky government debt.
[]
"This morning we've seen risk aversion coming back with the
Wall Street journal report," said Credit Agricole analyst Robin
Bhar. "That has obviously impacted on equities, we've seen
safe-haven flows into the dollar, but not into gold."
"If gold is getting those flows, it is really swimming
against the tide, as the dollar is rising, capping gains."
A stronger dollar curbs gold's appeal as an alternative
asset and makes dollar-priced commodities more expensive for
holders of other currencies, weighing on prices.
The euro fell 1 percent against the dollar <EUR=>, on fresh
worries about the euro zone banking system after the WSJ report.
The dollar index <.DXY>, which tracks the unit's performance
against a basket of others, rose 0.6 percent. []
Meanwhile, German government bonds rose, recovering some
ground after three sessions of steep losses last week, and
peripheral yield spreads widened as the report increased risk
aversion within the euro zone. []
On the wider markets, European shares slipped amid concerns
over the health of the banking sector, while world stocks
retreated from the previous session's one-month high. []
HEALTHIER TONE
A healthier tone to equity markets, after U.S. economic data
broadly pleased investors last week, eroded some of gold's
appeal as an alternative asset, analysts said. The largest gold
exchange-traded fund, the SPDR Gold Trust, reported outflows at
the end of last week. []
"High prices and already inflated investment demand limited
investor interest in the yellow metal, while many started
looking for returns elsewhere on high hopes for a continued
economic recovery," VTB Capital analyst Andrey Kryuchenkov said
in a note.
Among other commodities, oil prices fell more than 2 percent
and base metals like copper, zinc and lead all declined as gains
in the dollar make them more expensive for non-U.S. investors.
[] []
Demand for gold was steady in Asia, however, as the festival
season gets underway in India. Gold is widely offered as gifts
in religious celebrations and weddings in the country, which
accounts for 20 percent of global demand for jewellery. []
Among other precious metals, platinum <XPT=> was at $1,545
an ounce against $1,555.90, while palladium <XPD=> was at $520
against $523.83.
Both have benefited from expectations for a recovery in
autocatalyst demand -- the biggest segment of consumption --
though gains in palladium have outstripped those of platinum.
"We expect demand for palladium in auto catalytic converters
to outpace platinum demand in a recovery as vehicle growth
favors palladium-intensive regions -- the U.S. and emerging
markets over Europe," said Morgan Stanley in a note.
Spot silver <XAG=> was bid at $19.64 an ounce against
$19.90, having matched Friday's 2-1/2 year high at $19.92 an
ounce earlier this week.
(Reporting by Jan Harvey; Editing by Anthony Barker)
