* Gold extends losses as dollar adds to gains on euro
* Dollar soars to 3-1/2 month high against euro
* Gold falls below key level of $1,100/ounce
(Recasts with updates prices, previous dateline LONDON)
By Carole Vaporean
NEW YORK, Dec 17 (Reuters) - Gold prices fell 3 percent on
Thursday, pressured by the dollar's rise to 3-1/2 month highs
against the euro as upbeat U.S. economic news affirmed signs of
growth suggested by the Federal Reserve's policy statement a
day earlier.
The dollar got a boost both from the Fed's statement and
new concerns over Greece's fiscal health. Standard & Poor's
became the second rating agency to downgrade the euro zone
member in about a week. []
"While at one time people rushed to gold, when push comes
to shove, investors' preferred refuge these days is the U.S.
dollar, certainly in the after-affect of the downgrade of
Greece," said Peter Buchanan, senior economist and commodities
analyst at CIBC in Toronto.
A stronger dollar typically reduce gold's appeal as an
alternative investment and makes dollar-priced commodities more
expensive for holders of other currencies.
As the dollar strengthened, spot gold <XAU=> slipped below
a key psychological threshold of $1,100 an ounce in late New
York dealings and changed hands as low as $1,098.50 by 3:15
p.m. EST (2015 GMT), well below $1,137.80 late in New York on
Wednesday.
U.S. gold futures for February delivery <GCG0> on the COMEX
division of the New York Mercantile Exchange settled down
$28.80, or 2.5 percent lower, at $1,107.40 an ounce.
After hours, February gold slipped to $1,098 an ounce, a
six-week low.
The dollar soared to a 3-1/2 month high against the euro, a
day after the Federal Reserve highlighted improvement in the
U.S. economy and stood by plans to shutter most emergency
lending by February. []
"We had the downgrading of Greece, and that is putting a
bit of tension back into the euro," said Ole Hansen, senior
manager at Saxo Bank.
The latest U.S. economic readings spurred some unwinding of
safe-haven gold buying and helped lift the dollar.
Factory activity in the U.S. mid-Atlantic region hit a
4-1/2 year high in December and the U.S. leading economic
indicators saw another increase for an eighth month in a row,
adding to evidence of a pickup in the pace of the economy's
recovery. []
Some analysts also suggested that investors may be setting
up for portfolio re-adjustments heading into the new year.
"Certainly the dollar is the biggest factor contributing to
gold's liquidation pressure. But I also think there's some
anticipation of some pretty major reallocation of assets as we
move into the new year," said Stephen Platt, Archer Financials
senior market strategist in Chicago.
Based on valuations, he said, gold has been one of the
"bright stars" and assumed a greater proportion of many
portfolios. But many investors may return gold to portfolio
allocations that are more in line with smaller historical
averages.
"It seems like we are seeing a change in the perspective
for the dollar heading into the New Year, and that is going to
be an interesting one to follow," said Saxo Bank's Hansen.
UPWARD TRAJECTORY
At the same time, analysts pointed to recent signs that
show inflation heating up, the latest being a jump in the
December Philly Fed prices paid index, as providing gold
support.
New York investors showed renewed interest in
exchange-traded funds, with holdings of the world's largest
gold-backed ETF, the SPDR Gold Trust <GLD>, rising nearly 4
tonnes on Wednesday, the trust said. []
Earlier this month the fund saw its biggest outflow since
July as gold prices slipped.
Among other precious metals, silver <XAG=> was at $17.07 an
ounce, off $17.67. Platinum <XPT=> was lower at $1,418.90 than
$1,451.50 previously. Palladium <XPD=> fell to $360 against
$371.50 an ounce late on Wednesday.
Investment interest in the metal was strong, with holdings
of ETFS Physical Palladium <PHPD.L>, an exchange-traded product
operated by London's ETF Securities, rising more than 10,000
ounces on Wednesday to a record 658,743 ounces.
(Additional reporting by Jan Harvey in London; Editing by Lisa
Shumaker)
