* Gold reaches record high on safe-haven flows
* U.S. equities recovery stalls
* European shares end weaker, but off session lows
* Euro falls on nagging worries over deficits
* Chinese inflation data fuels tightening fears
(Updates with New York close, adds sterling, comment)
By Daniel Bases
NEW YORK, May 11 (Reuters) - Gold surged nearly 3 percent
to a record high on Tuesday as investor skepticism overran the
initial euphoria of Europe's $1 trillion euro zone rescue plan,
knocking the euro down and pulling most global share prices
lower.
Concerns that the efforts to backstop the euro zone
currency are only a short-term fix rather than a long-term
solution drove the flight from riskier assets.
The safe-haven flows into gold overcame the rise in the
U.S. dollar, which increases the cost of commodities for buyers
in other currencies. Spot gold traded <XAU=> up $28.90, or 2.40
percent, to $1,230.80, after hitting a record high of
$1,233.65.
"There's still a good amount of skepticism about whether or
not the support plan works, whether or not European governments
are ready to do the hard part of it and implement this
austerity program," said Frank Lesh, a futures analyst and
broker at FuturePath Trading LLC in Chicago.
At the close, the Dow Jones industrial average <> fell
36.88 points, or 0.34 percent, to 10,748.26. The Standard &
Poor's 500 Index <.SPX> lost 3.94 points, or 0.34 percent, to
1,155.79.
The Nasdaq Composite Index <> eked out a razor-thin
gain, rising 0.64 point, or 0.03 percent, to 2,375.31, helped
by gains in biotechnology and computer-related stocks.
Gold stocks surged with the rise in the price of the
precious metal. The Arca Gold bugs Index <.HUI>, which measures
the performance of 15 gold miners' stocks, surged 6 percent.
Helping Nasdaq and the biotech sector, Gilead Sciences
<GILD.O> unveiled a large stock-buyback program. Its shares
rose 2.3 percent to $39.62. The NYSE Arca Biotech index <.BTK>
gained 0.5 percent.
Banking shares stalled after surging on Monday. The S&P
financial index <.GSPF> shed 0.48 percent.
Stocks scored their biggest one-day gain in more than a
year on Monday.
The FTSEurofirst 300 <> index of top European shares
closed down 0.38 percent, after Monday's 7.39 percent advance.
Bank stocks, which had led on Monday, fell, with the STOXX
Europe 600 banking index <.SX7P> down 1.8 percent.
In Asia, Chinese stocks <> fell 1.9 percent to their
lowest level in a year on a worsening inflation outlook.
Chinese inflation rose to an 18-month high in April, increasing
concerns the government still has its work cut out to keep the
world's third-largest economy from boiling over.
MSCI's all-country world index <.MIWD00000PUS> cut losses,
falling 0.7 percent. Emerging stocks <.MSCIEF> dipped 0.82
percent.
EURO RUCTIONS
German Chancellor Angela Merkel's cabinet on Tuesday backed
plans to contribute 123 billion euros in loan guarantees to
support the euro currency. However, opposition lawmakers warned
it had yet to decide if it backed the rescue plan.
The euro fell 0.82 percent to $1.2676 <EUR=> after Monday's
initial push to $1.31.
"We realize now that this is just another way of delaying
perhaps the inevitable," said Shaun Osborne, chief FX
strategist at TD Securities in Toronto. "It pushes the debt
problems further down the road."
The greenback rose 0.46 percent against a basket of major
trading partner currencies <.DXY>.
Sterling rose after Conservative party leader
David Cameron took over as Britain's prime minister and said he
would form a coalition government. Sterling was up 0.7 percent
to $1.4955 <GBP=D4>, off earlier highs above $1.50. The pound
last week had fallen to a one-year against the U.S. dollar on
fear of a political stalemate after an inconclusive UK
election. []
DEBT FLAT
In a sobering note, the International Monetary Fund said
that even though Greece's public debt was sustainable over the
medium term, the nation faced plenty of risks. []
Moody's credit ratings agency also warned on Monday that it
might downgrade Portugal's debt rating and further cut Greece's
to junk status, noting the contagion effect of Greece's crisis
on other euro zone members. []
The unsettled German political scene left Bunds to
languish. They recouped less than half of Monday's drop, when
they suffered amid euphoria for riskier debt issuers following
the announcement of the European rescue package.
The June Bund future <FGBLc1> was up 20 ticks on the day at
125.69 but off its session high at 126.29.
Ten-year Greek bond yields <GR10YT=TWEB> fell by around 50
basis points to 7.7 percent, squeezing the spread against
German bond yields slightly tighter on the day to 477 bps as
investors opted to hold rather than sell the bonds.
Volatile trade left U.S. Treasuries little changed. Solid
demand for three-year notes was offset by the euro zone
concerns. A further $40 billion in issuance is due this week.
Benchmark 10-year U.S. Treasuries rose 1/32 of a point in
price, yielding 3.53 percent <US10YT=RR>.
U.S. light sweet crude oil <CLc1> settled down 43 cents, or
0.56 percent, to $76.37 per barrel.
(Additional reporting by Edward Krudy, Steven C. Johnson, Ryan
Vlastelica, Wanfeng Zhou in New York, Blaise Robinson in Paris,
Rebekah Curtis, Harpreet Bhal, Jan Harvey, and George Matlock
in London; Editing by Leslie Adler)
