* Falling stocks, sovereign debt worries support
* Low U.S., ECB rate outlooks seen positive
* Coming up: U.S. Q1 GDP, Core PCE prices on Friday (Recasts, updates prices, adds comments, changes byline, dateline, previous LONDON)
By Frank Tang
NEW YORK, June 24 (Reuters) - Gold rallied toward $1,250 an ounce on Thursday, gaining nearly 1 percent as lingering economic worries and an equity market slump triggered safe-haven demand.
The metal jumped $10 early in the session as U.S. stock markets tumbled to session lows. Bullion has recouped the previous session's losses due to lackluster housing data and a less optimistic growth outlook from the Federal Reserve.
Lingering sovereign credit risk pressured markets, traders said. Greece's finance minister called for "great moves" to safeguard the banking system and European policymakers defended austerity plans ahead of a G20 summit. [
] [ ]"When there is uncertainty in the market, people tend to go to gold as a safe haven in a flight to quality," said Jeff Pritchard, analyst at California-based broker Altavest.
Spot gold <XAU=> was at $1,245.95 an ounce by 12:58 p.m. EDT (1658 GMT), versus $1,235.20 late in New York on Wednesday, having hit an earlier intraday low of $1,227.75. U.S. August gold futures were last up $12.90 at $1,247.70 <GCQ0>.
Having hit a record $1,264.90 on Monday, prices have struggled to make further upward headway, which has left the market prone to short-term setbacks.
Gold came under pressure earlier as it reestablished its traditional inverse correlation with the dollar <.DXY> and the link strengthened later as the U.S. currency fell.
Stock markets fell after the Fed acknowledged a faltering pace of U.S. economic recovery on Wednesday as it renewed a vow to hold benchmark interest rates exceptionally low for an extended period. [
]The unfolding sovereign debt crisis in Europe remained in focus as index-linked fund managers ditched Greek government bonds, widening the spread between Greek yields and other benchmarks and increasing the cost of insuring Greek government debt against default. [
]"We've identified this as being the primary support for gold prices this week," said Nic Brown, senior analyst at Natixis.
"It's a central theme and a lot of what we've said about gold is that the credit problems on the sovereign side are the main driving force behind the rise in gold right now" he said.
A drop in weekly U.S. initial jobless claims and a rise in big-ticket manufactured goods offered some hope about the fragile economic recovery. But the market still believes U.S. interest rates will remain low. [
]"Low interest rates are generally good news for precious metals. We believe that the Fed and the ECB (European Central Bank) will remain on hold for quite some time because of the European debt problems," said Tobias Merath, an analyst at Credit Suisse.
Technical analysts were positive on the market's ability to breach new highs, despite its current lack of traction.
Altavest's Pritchard said gold is trading sideways in an "ascending triangle" pattern. (Graphic: http://link.reuters.com/byp73m )
In other precious metals, platinum <XPT=> was down at $1,557.50 an ounce, versus $1,566.00 on Wednesday, while palladium <XPD=> was at $467.95 from $471.00, having earlier fallen by as much as 2.3 percent.
Silver <XAG=> rallied in line with gold, rising to $18.75 an ounce, from $18.45 the day before. Prices at 1:08 p.m. EDT (1708 GMT)
LAST NET PCT YTD
CHG CHG CHG US gold <GCQ0> 1247.30 12.50 1.0% 13.8% US silver <SIN0> 18.750 0.291 1.6% 11.3% US platinum <PLN0> 1561.60 -5.40 -0.3% 6.2% US palladium <PAU0> 473.00 -1.35 -0.3% 15.7% Gold <XAU=> 1246.20 11.00 0.9% 13.7% Silver <XAG=> 18.75 0.30 1.6% 11.3% Platinum <XPT=> 1556.50 -9.50 -0.6% 6.2% Palladium <XPD=> 469.50 -1.50 -0.3% 15.8% Gold Fix <XAUFIX=> 1236.25 3.00 0.2% 12.0% Silver Fix <XAGFIX=> 18.38 -53.00 -2.8% 8.2% Platinum Fix <XPTFIX=> 1549.00 6.00 0.4% 5.7% Palladium Fix <XPDFIX=> 466.00 1.00 0.2% 15.9% (Additional reporting by Amanda Cooper and Veronica Brown in London)