* Dollar plunges vs euro as Fed cuts rates to 0-0.25 pct
* Gold holds firm despite oil dropping 8 pct
* SPDR Gold Trust bullion holdings rise again
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline, changes byline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Dec 17 (Reuters) - Gold climbed 1 percent
Wednesday to its highest level in more than two months as the
Federal Reserve's aggressive rate cut underscored a dire
economy and bolstered bullion's alternative investment appeal.
Bullion was also supported by the dollar which plunged
against the euro and record-low yields of U.S. Treasury debt
which showed strong flight-to-quality buying.
"It's a reflection of the safe haven flows when people are
willing to get zero percent in returns for a three-month
commitment from the government. It's just an indication that
the prospect of the economy is weak," said Tom Pawlicki,
precious metals and energy analyst of MF Global.
Long-dated U.S. Treasury debt prices jumped on Wednesday,
extending a recent rally, as investors raced for any returns a
day after the Federal Reserve pushed short-term rates to near
zero percent. []
Spot gold <XAU=> traded at $867.70 an ounce at 3:00 p.m.
EST (2000 GMT), up 1.2 percent from Tuesday's close of $857.35.
It hit a high of $881.20, its highest price since Oct. 10.
U.S. gold futures for February delivery <GCG9> settled up
$25.80, or 3.1 percent, at $868.50 an ounce on the COMEX
division of the New York Mercantile Exchange.
The euro rallied to its strongest level this quarter
against the greenback at $1.4436 after the U.S. central bank's
massive rate cut further widened the interest rate and yield
differential in favor of the common currency. []
"The primary factor is that the dollar is at 1.40 to the
euro, which is an amazing turnaround," said VM Group analyst
Matthew Turner.
"All this monetary easing and talk of printing money should
have been good for gold, but that wasn't showing up. It was
almost impossible when the dollar was rising," he said.
Gold held firm although its other main external driver,
crude oil <CLc1>, tanked 8 percent to close just 6 cents above
$40 per barrel as a production cut by OPEC was seen as too
small. [].
Investment demand for gold-backed exchange-traded funds was
firm. The world's largest bullion-backed exchange-traded fund
(ETF), the SPDR Gold Trust <GLD.P><GLD.A>, said its gold
holdings rose 3.98 tonnes to about 770 tonnes on Dec. 16 and
were up 1 percent or 7 tonnes since Friday. []
PLATINUM STEADIES
Among other precious metals, platinum and palladium were
little changed. The two metals, which are primarily used to
make catalytic converters, have fallen sharply in recent months
on fears demand would suffer from a slowdown in car sales.
Platinum is now trading close to parity with gold, a
situation last seen in 1996. However, the metal is likely to
recover next year, analysts said.
"Current price levels for platinum group metals are not
sustainable for many South African producers unless there is a
sharp weakening of the rand," said Fairfax analyst Marc
Elliott.
Spot platinum <XPT=> was at $864 an ounce, up 0.4 percent
from its previous finish of $860.50, while palladium <XPD=> was
at $174.50, 2 percent lower than Tuesday's late quote.
Silver <XAG=> was at $11.39, which was 1.6 percent higher
than its Tuesday close of $11.21.
(Reporting by Frank Tang; editing by Jim Marshall)
