* Financial sector woes spur flight to safety
* World cenbanks offer to pump billions into money markets
* SPDR Gold Trust reports 6 pct inflow in bullion holdings
(Recasts, updates throughout, changes dateline, pvs TOKYO)
By Jan Harvey
LONDON, Sept 18 (Reuters) - Gold rallied on Thursday,
extending record gains, as investors bought security while
central banks poured fresh liquidity into roiled money markets.
Spot gold <XAU=> traded at $879.20/881.00 at 1042 GMT, up 2
percent from $862.70 an ounce at the nominal New York close on
Tuesday.
"What is left for people to put their money in?" Afshin
Nabavi, head of trading at MKS Finance, asked. "They can't trust
the banks, they can't trust insurance companies, they can't
trust the stock markets."
Gold is one of the few trustworthy assets left, he said.
"Despite the sharp move gold had on the downside (recently),
compared to everything else -- oil, platinum, other commodities
-- it actually held up well," he added.
Gold recorded a relatively volatile session, trading within
a broad $40 range.
Central banks including the U.S. Federal Reserve, the
European Central Bank and the Bank of Japan, announced measures
to boost liquidity in the money market. []
"The central bank action has served to ease some stresses in
the interbank market," said Calyon metals analyst Robin Bhar.
"As well as central banks pumping in liquidity at
unprecedented levels, there are rumours of a coordinated round
of interest rate cuts, so that is filtering though."
On foreign exchange markets, the euro extended its climb
against the dollar and is up more than 1.2 percent on the day as
financial market jitters undermine sentiment, boosting buying of
gold as a currency hedge. []
Traders are now awaiting the opening of the U.S. markets for
clues to the future direction of trade, with further losses
among banking stocks likely to boost gold.
"We could potentially push through $900 if the Dow cracks
and people look for a safe haven," said Bhar.
CRISIS
The precious metal soared $90 an ounce on Wednesday, its
biggest one-day dollar rise in history, as stock markets slumped
and investors panicked over the future of the financial sector,
after a major U.S. money market mutual fund slid in value.
Banks are now running scared of lending to each other,
analysts said, and risk aversion is rife.
"The spread between 3-month U.S. LIBOR and the Fed funds
rate (is) widening to 90 basis points -- a one-year high," said
Manqoba Madinane, an analyst at Standard Bank.
"We believe this is an indication of the high degree of
investor risk aversion in current market conditions -- which
should ultimately support fund flows into precious metals."
Investment demand picked up strongly, with the world's
largest gold-backed exchange-traded fund, the SPDR Gold Trust
<GLD>, reporting an inflow of 36.46 tonnes or 6 percent on
Wednesday. []
The move brought the trust's holdings to 650.81 tonnes, a
two-and-a-half-week high.
Among other precious metals, silver tracked gold higher,
rising 5 percent to a session high of $12.69, before easing back
to trade at $12.68/12.76 against $12.00 an ounce at the nominal
New York close on Wednesday.
Platinum and palladium failed to capitalise on bullion's
rise, instead tracking losses in base metals as investors
worried about the outlook for demand.
Platinum was at $1,116.50/1,146.50 against $1,118.00, while
palladium was at $237.00/242.00 against $243.00.
(Reporting by Jan Harvey; Editing by Michael Roddy)
