* China lifts benchmark 1-yr interest rates by quarter-point
* Prices still supported as traders await clues on QE
* Palladium seen as one of top picks among commods by UBS
(Updates prices, adds detail)
By Jan Harvey
LONDON, Oct 19 (Reuters) - Gold prices extended losses to
fall 2.3 percent on Tuesday and were on track for their biggest
one-day loss since July 1 as the dollar rose against a currency
basket after China raised its benchmark one-year interest rates.
Spot gold <XAU=> fell as low as $1,335.60 an ounce and was
bid at $1,338.85 an ounce at 1321 GMT against $1,368.45 late in
New York on Monday. U.S. gold futures for December delivery
<GCZ0> fell $32.90 an ounce to $1,339.20.
Although its longer-term impact on the currency markets was
unclear, the news gave an immediate lift to the dollar and
pressured bullion prices. [] []
"Taken together with more exchange rate flexibility, (this)
could point to a stronger yuan over the medium term, which will
reduce the need for the dollar to fall against other currencies
as part of the process of rebalancing," said Matthew Turner, an
analyst at Mitsubishi Corp.
"Anything that alters the perceptions of where the dollar
and global monetary policy is headed is significant for gold at
the moment," he added.
Strength in the U.S. unit usually weighs on gold, as it
curbs its appeal as an alternative asset and makes dollar-priced
commodities more expensive for other currency holders.
Gold priced in euros <XAUEUR=R> and sterling <XAUGBP=R> also
fell after the news by 1.6 percent and 1.3 percent respectively.
Spot gold prices hit record highs at $1,387.10 an ounce last
week amid concerns over the stability of the currency markets
and on expectations for further U.S. quantitative easing which
could undermine the dollar.
While they have since corrected, losses are likely to be
limited as investors look ahead to a meeting of the Federal Open
Market Committee next month.
"Gold is not going to move much lower when you have the FOMC
ahead of us in early November, the G20 preparations later this
month and the full summit next month," said Credit Agricole
analyst Robin Bhar.
"These are all potentially friendly towards the gold market,
certainly the FOMC, where it is expected that they will embark
on further easing," he said. "We will see that perhaps pushing
the dollar lower."
GOLD ETF SEES OUTFLOWS
In New York, the world's largest gold exchange-traded fund,
the SPDR Gold Trust <GLD> reported another small outflow of just
under 1 tonne from its bullion holdings on Monday. Its holdings
have declined for nine of the last 15 sessions. []
However, a drop in bullion prices ignited purchases from
Indian jewellers as the festive season progressed, while demand
from the electronics sector in Japan failed to offset selling
from investors, dealers said on Tuesday. []
"Overall demand is continuing despite near-record prices,
activity is good on corrections to $1,360, or 19,700 rupees,
with the rupee also helping out," said Pinakin Vyas, assistant
vice-president with bullion importing IndusInd Bank in Mumbai.
Silver <XAG=> was at $23.54 an ounce against $24.35,
platinum <XPT=> was at $1,670 an ounce against $1,690, and
palladium <XPD=> at $572.50 against $583.58.
Swiss bank UBS identified palladium on Tuesday as one of its
top picks among commodities going forward. It forecast an
average price for the autocatalyst metal of $500 an ounce this
year, rising to $625 in 2011 and $700 in 2012. []
The metal has been one of the best-performing precious
metals this year, rising 44 percent.
(Editing by James Jukwey)
