* Safe-haven play on weak stocks, sovereign debt worries
* Low U.S., ECB rate outlooks seen positive
* S.African Eskom strike boosts PGM market sentiment
* Coming up: U.S. Q1 GDP, Core PCE prices on Friday (Recasts, updates prices to market close, adds comments)
By Frank Tang
NEW YORK, June 24 (Reuters) - Gold rallied toward $1,250 an ounce on Thursday, gaining nearly 1 percent as the renewed sovereign credit risk and an equity market slump prompted investors to pile into safe-haven assets.
The metal jumped $10 early in the session as U.S. stock markets tumbled to session lows on economic worries. Bullion has recouped the previous session's losses due to a less optimistic growth outlook from the Federal Reserve and lackluster housing data.
Lingering fears over European credit contagion 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 $1,245.05 an ounce by 2:30 p.m. EDT (1830 GMT), versus $1,235.20 late in New York on Wednesday. U.S. August gold futures settled up $11.10 at $1,245.90 <GCQ0>.
Having hit a record $1,264.90 on Monday, prices have struggled to make further 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.
Year-to-date, the euro has dropped about 14 percent amid questions about the viability of the common currency after a flurry of sovereign credit downgrades.
"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," said Nic Brown, senior analyst at Natixis.
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. [
]"There is a total lack of confidence in fiat currencies. So, people chose to take money to safer haven which is primarily gold and silver, which tend to do better than most other commodities in retaining their value in times of crisis," said Michael Daly, gold specialist at Chicago-based futures broker PFGBest.
U.S. stock markets fell sharply for a second straight day 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. [
]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 upbeat 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, and prices could breach their upward channel. (Graphic: http://link.reuters.com/byp73m )
In other precious metals, platinum <XPT=> was at $1,565 an ounce versus $1,566.00 on Wednesday, while palladium <XPD=> was at $475 from $471.00, having earlier fallen as much as 2.3 percent.
Supply worries boosted sentiment for platinum group metals after a union representing workers at South African utility Eskom won the right to begin a strike that could disrupt power supply and hurt industry and mines during the soccer World Cup. [
]Silver <XAG=> rallied in line with gold, rising to $18.70 an ounce from $18.45 the day before. Prices at 2:28 p.m. EDT (1828 GMT)
LAST NET PCT YTD
CHG CHG CHG US gold <GCQ0> 1246.40 11.60 0.9% 13.7% US silver <SIN0> 18.720 0.261 1.4% 11.1% US platinum <PLN0> 1566.20 -0.80 -0.1% 6.5% US palladium <PAU0> 477.70 3.35 0.7% 16.8% Gold <XAU=> 1245.15 9.95 0.8% 13.6% Silver <XAG=> 18.70 0.25 1.4% 11.0% Platinum <XPT=> 1564.50 -1.50 -0.1% 6.8% Palladium <XPD=> 475.00 4.00 0.8% 17.1% 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; editing by Jim Marshall)