* Equities slip, dollar climbs on European banking jitters
* Steady demand expected from India over festival period
* Palladium seen outpacing gains in platinum
(Updates prices)
By Jan Harvey
LONDON, Sept 7 (Reuters) - Gold erased early losses to rise
to its highest since late June on Tuesday as investors returning
from the U.S. Labor Day holiday bought the metal as a haven amid
concerns over the health of the European banking system.
Spot gold <XAU=> hit a high of $1,259.80 an ounce and was
bid at $1,257.20 an ounce at 1437 GMT, against $1,249.55 late in
New York on Monday. U.S. gold futures for December delivery
<GCZ0> rose $7.70 to $1,258.80.
Gold denominated in euros <XAUEUR=R> also climbed to a
two-month peak at 987.92 euros an ounce, while strength in the
yellow metal lifted silver <XAG=> to 2-1/2 year highs at $20.00
an ounce.
"Gold investors' loyalty towards the yellow metal looks to
be rewarded as it slowly grinds its way back towards the record
highs," said Ole Hansen, senior manager at Saxo Bank.
"Risk-off again, with European banks potentially needing to
raise additional capital, seems to have dampened the excitement
after Friday's U.S. data." Better-than-expected U.S. payrolls
data lifted risk appetite and pressured gold on Friday.
He said though another round of profit taking could take
place before significant new highs are reached, "the trend is
still pointing north".
Risk aversion prevailed on the wider markets, with equities
slipping and the dollar climbing after a Wall Street Journal
report said Europe's recent "stress tests" of major banks
underestimated some lenders' holdings of potentially risky
government debt. []
The euro fell 1 percent against the dollar <EUR=>, while the
dollar index <.DXY>, which tracks the unit's performance against
a basket of others, rose 0.76 percent. []
On the wider markets, Wall Street opened lower and European
shares slipped, while world stocks retreated from the previous
session's one-month high. [] []
OIL FALLS
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
$1,551.73 an ounce against $1,555.90, while palladium <XPD=> was
at $526 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 was flat at $19.90 after its earlier 2-1/2 year
high.
"On a fundamental basis, we still expect the silver market
to be in surplus this year, thus investor appetite will remain
pivotal for prices to retain their upward momentum," said
Barclays Capital in a note.
"Given our positive view on gold, we would expect prices to
test higher highs as the year unfolds."
(Editing by James Jukwey)
