* Gold posts biggest one-day gain in dollar terms
* Stocks slip as fears rise over outlook for financials
* GFMS predicts higher gold prices in fourth quarter
(Recasts, updates closing prices, adds market activity, analyst
comment, NEW YORK to dateline and byline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Sept 17 (Reuters) - Gold posted a record
one-day gain in absolute dollar terms on Wednesday, hitting a near
six-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 <AIG.N>
have fueled 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 more than 10 percent to $866.10 an ounce
at 2:55 p.m. (1455 GMT) by New York's last quote, up sharply from
Tuesday's nominal U.S. market close of $777.55.
"It looks like (gold) has finally found its safe-haven bid,"
said Standard Chartered head of commodity research Helen Henton.
Gold prices were 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.
U.S. gold futures for December delivery <GCZ8> settled up
$70.00, or 9 percent, at $850.50 an ounce on the COMEX division of
the New York Mercantile Exchange. In after-hours electronic trading,
gold scaled a high of $872.90, its highest level since Aug. 8.
The U.S. Federal Reserve said in a statement it would extend
American International Group $85 billion in exchange for a nearly 80
percent stake to bail it out. []
"The AIG situation, rather than calming the waters, created
concerns of how many other AIGs are out there," said Bill O'Neill,
managing partner of New Jersey-based LOGIC Advisors.
Investment banking shares are also suffering, as Lehman
Brothers' <LEH.N> insolvency earlier this week raises questions
about the future of the sector.
FALLING BANK STOCKS
Shares in Wall Street banks Morgan Stanley <MS.N> and Goldman
Sachs <GS.N> 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 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 <XAG=> meanwhile tracked gold higher, soaring to a high
of $12.02 an ounce and was last quoted at $11.90/12.00 an ounce.
Among other precious metals, spot platinum <XPT=> traded at
$1,102.00/1,132.00 per ounce, up from Tuesday's close in New York.
Spot palladium <XPD=> was last quoted at $239.50/249.50 an
ounce, higher than its Tuesday close of $222.50/228.50.
(Additional reporting by Pratima Desai in London; Editing by
Marguerita Choy)
