* Gold pulls back as stock rally fizzles in volatile trade
* Relative calm returns as U.S. unveils bank rescue plan
* Recession fears should support gold in longer term
(Recasts, updates with quotes, market activity, closing prices, adds
NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 14 (Reuters) - Gold pulled back from early
gains to end lower in New York futures trade on Tuesday, as a morning
stock market rally fizzled even as the United States unveiled plans
to take stakes in its biggest banks.
Even though gold could weaken in the near term due to the
government rescue plans and volatile market conditions, bullion
should rise in the longer term as recession wreaks havoc, dealers
said.
The United States unveiled plans to take equity stakes worth up
to $250 billion in financial institutions, an incursion into the
private sector that U.S. officials called a regrettable last resort.
[]
"In the very short term, it makes gold more vulnerable with the
relief that the U.S. policymakers are finally tackling the credit
crisis," said Jeffrey Nichols, managing director at American Precious
Metals Advisors.
The U.S. gold contract for December delivery <GCZ8> settled down
$3 at $839.50 an ounce on the COMEX division of the New York
Mercantile Exchange.
Spot gold <XAU=> was at $839.45/842.45 an ounce at 2:32 p.m. EDT
(1832 GMT), up 1 percent from Monday's nominal overnight close --
which was near its session lows when global stocks rallied.
In early dealings, gold jumped 2 percent to a session high of
$853.50 an ounce.
Nichols said, in the long run, gold should be boosted by the
higher inflationary implications of the market rescue plans and
strong physical demand amid record buying of gold coins and bars.
U.S. stocks dropped slightly in a seesawing session on Tuesday
amid recession fears, following the Dow Jones industrial average's
<> 936-point rally on Monday, its biggest one-day point gain
ever.
The U.S. government rescue plan came after European powers agreed
to recapitalize their banks a day earlier, triggering a global stock
market rebound that continued on Tuesday when Wall Street rallied 4
percent at the open before falling back. [][]
Signs of relative calm could be seen in the money market, with
the U.S. federal funds traded at 1.0 percent in Tuesday afternoon,
below the 1.5 percent target rate for overnight money the Federal
Reserve sets, after the Fed added temporary reserves into the banking
system. []
Mark O'Byrne, director of Gold & Silver Investments in Dublin,
said uncertainty in equities made gold's near-term direction hard to
call, but "traditionally, when you see the Dow Jones and the FTSE do
well, people sell gold."
The dollar added to pressure on bullion as it recovered from
early lows against the euro. []
"We still believe that the main driver of gold is going to be the
U.S. dollar," Standard Bank analyst Walter de Wet said. "If sentiment
improves and the U.S. dollar appreciates, gold should move lower."
EQUITIES RECOVER
Overall weakness in the dollar, the recovery in equities and
fresh optimism over the economic outlook sparked buying of
commodities in earlier trade, with industrial metals all trading
higher after heavy losses last week.
The Reuters-Jefferies CRB commodities index <.CRB> jumped 3
percent to 298.70 in the previous session, after reaching its lowest
level since January 2007 last week. However, it fell about 0.75
percent on Tuesday.
Demand for gold is firm, with investors buying into coins and
bars and interest in gold-backed exchange-traded funds near record
levels. However, firmer equities may limit gold's rise.
"Even though we see potential for more gains, it is probably
limited while the equity markets remain in such a buoyant mood, which
could be the case for some more days," Commerzbank analysts said in a
note.
Among other precious metals, silver tracked gold higher to rise 4
percent at its session high of $11.10 an ounce. Silver, which is
primarily viewed as an industrial metal, is also benefiting from
hopes that more stable markets could support demand.
Spot silver <XAG=> was at $10.89/10.97, up 2.3 percent from
Monday's nominal close of $10.65.
Platinum and palladium, which are also largely traded as
industrial metals, climbed, with platinum gaining more than 6 percent
to its session high of $1,040 an ounce.
Both metals have posted sharp losses in recent months as
investors worried about the demand outlook for the car industry,
which accounts for about half of total platinum demand. This could
curb further gains, analysts say.
Spot platinum <XPT=> was at $1,025.50/1,045.50 an ounce, up from
$978.50 in late New York trade on Monday, while palladium <XPD=> was
at $197.50/205.50 an ounce, against its previous close of $196.50.
(Editing by Walter Bagley)
