* Gold down as oil drops to $36/barrel and dollar bounces
* Inflation in focus after Fed cuts rates to bone
* SPDR Gold Trust bullion holdings rise to record
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline, changes byline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Dec 18 (Reuters) - Gold ended lower on
Thursday as a dollar bounce and oil tumble prompted players to
take a breather following bullion's recent rally.
Inflation talk among traders heated up after the Federal
Reserve cut rates to the bone this week and said it would
employ all tools to combat a recession.
"Everybody said they are going to do whatever that needs to
be done to turn this around. I think the world is going to turn
around a lot sooner than people think because they are
inflating the world," said Jonathan Jossen, a COMEX gold
options floor trader.
Spot gold <XAU=> was at $855.30 an ounce at 2:25 p.m. EST
(1925 GMT), down 1.3 percent from Wednesday's close of
$866.90.
U.S. gold futures for February delivery <GCG9> settled down
$7.90 at $860.60 an ounce on the COMEX division of the New York
Mercantile Exchange.
The precious metal slipped from highs as the dollar
recovered some lost ground against the euro, having earlier
touched a 2-1/2-month low against the single currency. []
"The short-term prescription is to watch the dollar," said
Jon Nadler, senior analyst at Kitco Bullion Dealers.
The dollar has plummeted since the Federal Reserve slashed
interest rates to between zero and 0.25 percent on Tuesday. A
weaker U.S. currency supports gold, which is often bought as an
alternative investment to the dollar.
The other main external driver of gold, oil prices, also
undermined interest in the precious metal.
U.S. crude futures plunged 9 percent to drop below $36 a
barrel as a widely anticipated output cut from OPEC on
Wednesday failed to offset fears over falling demand. []
Analysts expect gold to consolidate after recent sharp
gains. Prices have risen more than $130 an ounce month-on-month
as the dollar weakened against the euro.
"For the rest of the year, I think we will basically see
some consolidation of the gains we have seen in the last few
weeks," BNP Paribas analyst Michael Widmer said. "A gold price
movement of the size of yesterday would be surprising."
SPDR HITS RECORD
Investor demand for exposure to bullion prices through
exchange-traded funds, which issue securities backed by
physical gold, remained firm.
The world's largest gold-backed ETF, the SPDR Gold Trust
<GLD>, said its bullion holdings rose 6.1 tonnes, or almost 1
percent, on Dec. 17 to a record high. []
The trust, which issues securities backed by physical
stocks of gold, now holds 775.33 tonnes of bullion. Its
holdings are up 17.5 tonnes, or 2.3 percent, week-on-week.
Platinum and palladium were little changed as the market
digested more bad news from the car industry, the main consumer
of both metals.
Spot platinum <XPT=> closed at $857 an ounce, down 0.8
percent from its previous finish of $863.50, while palladium
<XPD=> was at $175.00, 0.3 percent lower than Wednesday's late
quote of $175.50. Silver <XAG=> was last at $11.06, which was
2.7 percent lower than its Wednesday close of $11.37.
(Editing by Christian Wiessner)
