* Fed announces $600 bln in easing measures, dollar drops
* Palladium hits fresh 9-1/2 year high, fundamentals strong
* Coming up: ECB interest rates decision at 1245 GMT
(Updates prices, adds detail)
By Jan Harvey
LONDON, Nov 4 (Reuters) - Gold rose 1 percent in Europe on
Thursday, lifted by the dollar's slide to 11-month lows versus a
basket of currencies after the Federal Reserve said it would
inject a further $600 billion into the financial markets.
The Federal Reserve committed to buy billions of dollars'
worth of government bonds late on Wednesday in a fresh effort to
support a struggling U.S. economy, undermining the U.S. currency
and stoking fears over longer-term inflation. []
Gold tends to move in a close inverse relationship with the
dollar, as it can be bought as an alternative to the U.S. unit.
Spot gold <XAU=> was bid at $1,362.60 an ounce at 1147 GMT,
against $1,347.15 late in New York on Wednesday. U.S. gold
futures for December delivery <GCZ0> rose $25.30 to $1,362.90.
Gold, which rallied to record highs last month after a fresh
round of quantitative easing was first mooted, sold off ahead of
the Fed statement on Wednesday after heavy long liquidation of
New York futures, recovering only to drop again in the immediate
wake of the announcement.
"The first reaction was to the downside because (the move)
was expected, and the market was first trading on the basis of
'buy the rumour, sell the fact'," said Commerzbank analyst Eugen
Weinberg.
"But then the dollar became weak, and that gave a very
positive impulse to the precious metals." He said further gains
would depend on the unfolding reaction of the dollar. []
Currency analysts are waiting to see what the broader
implications of the move will be in what is still a heavy news
week on the macroeconomic front.
"As a result of last night's decision, the risk of tensions
within emerging market economies has risen as officials from
Brazil, South Korea and China pledged to take steps to curb
capital inflows as a result of last night's action," said CMC
Markets analysts in a note.
"With the Fed decision safely out of the way focus can now
shift to the respective decisions of the Bank of England and the
European Central Bank today."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For Reuters report on the implications of quantitative
easing, click on: http://r.reuters.com/cyh73q
For text of NY Fed statement, click on: []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
ECB STATEMENT EYED
The ECB is expected to show no sign of veering off its
crisis exit path when it meets on Thursday after the Federal
Reserve revived its programme of asset purchases. Policymakers
are seen keeping interest rates at 1 percent. []
A statement by the bank's president Jean-Claude Trichet
after the rates announcement at 1245 GMT will also be closely
watched for an early hint on whether the ECB will phase out more
of its crisis support measures in January.
On the physical side of the gold market, Indian demand was
strong during the week of the Dhanteras festival, which
celebrates prosperity, and the Diwali festival of light. Scrap
sales also slowed to a trickle. []
Among other precious metals, silver <XAG=> rose to a 30-year
high at $25.40 an ounce, tracking gains in gold, and was later
at $25.30 against $24.80.
Palladium meanwhile rallied to its strongest since May 2001,
lifted by strength in gold and expectations its underlying
fundamentals will improve as demand from automakers recovers and
supply struggles to keep pace.
"Tracking gold is part of the story, but there is talk in
the market that Russian state stocks are nearly depleted -- that
story has come back every year for 10 years now -- and there is
a lot of investment buying on back of that," said one European
PGMs trader.
"But if you look at the size of the ETF and hedge fund long
positions, people should rather be scared by that than by any
fear of supply shortage."
Palladium <XPD=> peaked at $672.50 an ounce and was later at
$665.97 an ounce against $643.72 late on Wednesday. Platinum
<XPT=> rose to a near five-month high at $1,739.50 an ounce and
was later at $1,732.50 an ounce against $1,703.
(Editing by Alison Birrane)
