* Fed to buy long-dated Treasuries, stirs inflation fear
* Gold rebounds sharply from six-week lows after Fed
* Bullion supported by a tumbling dollar
(Recasts, updates with FOMC decision, quotes, closing prices,
changes byline)
By Frank Tang
NEW YORK, March 18 (Reuters) - Gold rebounded sharply on
Wednesday as a surprise move by the Federal Reserve to buy up
to $300 billion worth of long-dated U.S. government debt
rejuvenated bullion's appeal as a hedge against inflation.
"Gold has moved positively on the Fed statement as this
drop in the dollar has fueled gold's comeback," said James
Steel, chief commodities analyst at HSBC in New York.
"I don't know if the market was entirely expecting this to
occur. Gold has been very sensitive to the financial sector, so
this is potentially an important development," Steel said.
An increase in money supply in the financial system
following massive economic stimulus plans could lead to a sharp
rise in long-term inflation, and that boded well for gold.
Spot gold <XAU=> was at $930.00 an ounce at 2:56 p.m. EDT
(1856 GMT), up 1.7 percent from its last quote $914.20 in New
York late Tuesday.
Earlier in the session, bullion touched a six-week low of
$882.90 an ounce as risk appetite diminished.
The Fed on Wednesday said it will buy up to $300 billion
worth of longer-term U.S. government debt over the next six
months and expand purchases of mortgage-related debt to help
ease credit market conditions. []
"In these circumstances, the Federal Reserve will employ
all available tools to promote economic recovery and to
preserve price stability," the Fed said.
However, the Fed also said that, "in light of increasing
economic slack here and abroad," it expects that inflation will
remain subdued.
Prior to the Fed's announcement, U.S. gold futures for
April delivery <GCJ9> settled down $27.70, or 3 percent, at
$889.10 an ounce on the COMEX division of the New York
Mercantile Exchange.
April futures, however, rebounded 2 percent to a high of
$935.90 an ounce after the Fed announcement.
Gold was also supported as the U.S. dollar plunged, hitting
a two-month low against the euro, after the Federal Reserve's
announcement.
The euro surged above $1.34 for the first time since
mid-January as analysts feared the Fed's move would flood the
market with dollars and increase already large U.S. deficits.
PAULSON BUYS STAKE IN MINER
U.S. hedge fund Paulson & Co showed its confidence in the
gold sector with the purchase of a $1.3 billion stake in the
world's third largest gold miner, AngloGold Ashanti <AGLJ.J>,
from mining group Anglo American <AAL.L>. []
"The very fact that Paulson has made this move is going to
prompt other hedge funds to look at why, and what the merits of
following that with similar purchases are," said Fairfax
analyst John Meyer.
"AngloGold is deep-level, higher-cost, quite highly
leveraged gold mining, with good liquidity and good scale," he
said. "(Paulson) clearly feel that gold is going to
strengthen."
Among other precious metals, spot silver <XAG=> was at
$12.84 an ounce, up 1.1 percent from its Tuesday finish of
$12.70, tracking gold's sharp rebound.
Spot platinum <XPT=> rose to $1,052.50 an ounce, up 0.9
percent from its previous close of $1,043.50, while spot
palladium <XPD=> was at $196.50 an ounce from its late Tuesday
quote of $191.50.
(Additional reporting by Jan Harvey; editing by Jim
Marshall)
