* Gold posts biggest one-day gain in dollar terms since 1980
* U.S. stocks slip as fears rise over outlook for financials
* GFMS predicts higher gold prices in fourth quarter
(Adds detail, updates prices)
By Jan Harvey
LONDON, Sept 17 (Reuters) - Gold prices posted their biggest
one-day rise in absolute terms since 1980, hitting a three-week
high with investors fleeing to safety as they watched the
carnage on stock markets and expected further losses.
Silver tracked gold higher to record its biggest one-day
rise in percentage terms since 1995.
Losses in U.S. investment banking stocks and doubts over the
government's bailout of insurer American International Group
have fuelled fears over the outlook for the financial sector.
Sliding U.S. equity markets and worries about the financial
outlook have sparked a flight to "safer" assets, such as
bullion, analysts said.
"It's unbelievable, simply unbelievable, what is happening,"
said Eugen Weinberg, commodities analyst at Commerzbank.
"Investors are insecure and going into gold. There is
safe-haven buying from all over the world."
Spot gold <XAU=> rose 8.4 percent to $840.50/841.70 an ounce
as of 1633 GMT from Tuesday's nominal close in New York of
$775.55. Earlier it touched a session high of $843.80 an ounce.
"It looks like (gold) has finally found its safe-haven bid,"
said Standard Chartered head of commodity research Helen Henton.
Gold prices are reacting to deepening fears over the outlook
for U.S. investment banks and concerns over the government's
rescue plan for AIG, which have sparked fresh buying of
commodities.
The U.S. Federal Reserve said in a statement it would extend
AIG <AIG.N> $85 billion in exchange for a nearly 80 percent
stake to bail it out. []
But the insurer has posted losses despite the Fed's move,
with shares trading down 39.47 percent at 1640 GMT.
Investment banking shares are also suffering, as Lehman
Brothers' insolvency earlier this week raises questions about
the future of the sector.
FALLING BANK STOCKS
Shares in Wall Street banks Morgan Stanley and Goldman Sachs
plummeted as worries over the outlook for the financial sector
multiplied, sparking a rise in oil and gold prices.
Elsewhere, the Reserve Primary Fund, a money market mutual
fund whose assets have fallen 65 percent in recent weeks, fell
below $1 a share in net asset value due to losses on debt issued
to Lehman Brothers. []
"It's the oldest money market funds in the United States.
Money market funds aren't supposed to lose money, " Weinberg
said.
A spike in interbank lending rates in the United States has
added to worry about the global financial system. U.S. stocks
slid 2 percent. As financial worries spread, Russia halted stock
and bond trading in a response to the worst market falls since
1998. []
With the problems facing investment banks likely to worsen,
gold could post further gains as the flight to safety gains
strength, analysts said.
"As long as the turmoil in the financial markets continues,
and as long as the banks distrust each other... the preference
for safe-haven assets is definitely going to continue," said
Dresdner Kleinwort consultant Peter Fertig.
Precious metals consultancy GFMS said in a report on
Wednesday that investment demand was expected to drive gold
prices "well above" $900 an ounce in the fourth quarter as the
dollar slips and the outlook for the financial sector worsens.
[]
Silver meanwhile tracked gold higher, rising 9 percent to a
one-week high of $11.45 an ounce before easing to trade at
$11.37/11.42 an ounce.
Among other precious metals, spot platinum <XPT=> was
trading at $1,073.00/1,093.00 per ounce, up 2.3 percent from
Tuesday's close in New York.
Spot palladium <XPD=> was little changed from Tuesday's
nominal New York close at $223.50/231.50 an ounce, against
$222.50/228.50.
(Reporting by Jan Harvey; additional reporting by Pratima
Desai; editing by Christopher Johnson)
