* Euro, stock market recovery points to better risk appetite * China's SAFE says gold too illiquid for asset allocation * Coming up: ECB interest rates announcement, 1230 GMT
(Updates, adds comment, changes dateline from SINGAPORE)
By Jan Harvey
LONDON, June 10 (Reuters) - Gold eased towards $1,220 an ounce in Europe on Thursday as positive comments from the head of China's national pension fund lifted the euro, reducing bullion's appeal as a haven from weakness in the currency.
The precious metal extended losses after China's State Administration of Foreign Exchange (SAFE) said in an annual report that the gold market is too small, illiquid and volatile to be suitable for asset allocation. [
]Spot gold <XAU=> was bid at $1,220.60 an ounce at 0935 GMT, against $1,230.35 late in New York on Wednesday. U.S. gold futures for August delivery <GCQ0> fell $8.50 to $1,221.40.
The euro <EUR=> rose after the head of China's national pension fund, Dai Xianglong, said the currency would weather Europe's debt crisis. [
] [ ]Heavy losses in the euro on the back of European sovereign debt concerns have lifted demand for gold this year as investors sought to diversify out of the currency, analysts said. The euro's brief bounce higher has temporarily curbed this buying.
"If you look at a chart of the euro, it's been punished quite severely for some time now, and it is not unreasonable to believe that it will have a bit of a bounce along the way," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
"We are seeing an interim consolidation, with the euro recovering a bit and gold down a bit. Overall I would expect the euro to turn lower again and gold to turn higher, but it is not going to be a one-way street."
European shares benefited from sharper risk appetite, paring early losses to move higher by mid-morning. Asian stocks also rose overnight after Federal Reserve Chairman Ben Bernanke gave assurances the U.S. recovery was on a solid footing. [
]Oil prices also edged higher, as confirmation of strong Chinese overall exports in May outweighed weaker demand readings in top consumer the United States. [
]Trading was muted, however, ahead of a key policy announcement from the European Central Bank due at 1230 GMT. The ECB is expected to hold rates at 1.00 percent.
COIN, BAR DEMAND SOFTENS
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust <GLD>, at a record high 1,298.53 tonnes on Wednesday. [
]However, demand for small investment products like coins and bars has tailed off recently in Europe and the United States, UBS analyst Edel Tully said in a note.
"Physical demand, relatively dampened since Wednesday of last week, is now overshadowed by increased scrap supply out of Asia," she said. "This price-dependent supply... suggests more downside risk for the yellow metal in the short term."
Also on the supply side of the market, Statistics South Africa said the republic's gold output fell 6.2 percent in April from the same month of 2009. [
]Among other precious metals, silver <XAG=> was at $17.95 an ounce against $18.07, palladium <XPD=> was at $448 versus $447.50, and platinum <XPT=> at $1,530 an ounce against $1,525.
The ratio of gold to platinum -- which shows how many ounces of gold are necessary to buy an ounce of platinum -- lifted from the six-month low of 1.22 it hit at the beginning of the week, but platinum remains relatively inexpensive compared to gold.
The autocatalyst metal is suffering along with other industrial commodities from a perception that economic growth is not rising as much as might have been hoped, dealers said.
"Despite full order-books at various companies, with the background of the continuing debt crisis in Europe, investors at the moment appear to be sceptical about economic developments -- and the U.S. is not looking any better in this context," said precious metals house Heraeus in a weekly report. (Editing by Sue Thomas)