PRECIOUS-Gold drops as dlr gains bring market off 2-mth high

                                
 * Stronger dollar offsets initial rise on inflation worry
                                
 * Bank of England boosts stimulus, ECB holds rates
                                
 * Profit-taking in platinum group metals
 (Recasts, updates prices, market activity to close; adds
second byline, dateline, previously LONDON)
                                
 By Frank Tang and Jan Harvey
                                
 NEW YORK/LONDON, Aug 6 (Reuters) - Gold futures ended lower
on Thursday as a rising dollar prompted the precious metal to
retreat from a two-month high reached earlier as the Bank of
England stunned markets with a big increase in bond buying to
stimulate the economy.
                                
 Global monetary easing, combined with the recent upturn in
economic sentiment, have sent gold sharply higher after the
metal was pressured by deflation fears earlier this year.
                                
 "I think the market is ripe for a minor correction," said
George Nickas, commodities broker at FC Stone. "The stock
market has the main attention right now, and commodities
markets are chucking right along, but that can turn on a
dime."
                                
 Gold has risen toward $1,000 an ounce several times in the
past 18 months, and each time met heavy liquidation pressure.
                                
 U.S. December gold futures <GCZ9> settled down $3.40 at
$962.90 an ounce on the COMEX division of the New York
Mercantile Exchange. Earlier in the session, the contract hit a
session high of $974.30, the loftiest price since June 5.
                                
 Spot gold <XAU=> was at $958.30 an ounce at 2:33 p.m. EDT
(1833 GMT), against $961.95 an ounce late in New York on
Wednesday.
                                
 The Bank of England stunned investors by boosting its bond
buying program, also called quantitative easing, to 175 billion
pounds ($297 billion) from 125 billion, beyond a previous limit
of 150 billion pounds. [ID:nL6430949]
                                
 "People are starting to get worried about banks having
things too loose for too long," Citigroup analyst David
Thurtell said.
                                
 But gold fell from its intra-day peak after the European
Central Bank said it expected price stability to be maintained.
[ID:nECBNEWS]
                                
 Bullion, however, could still weaken because of a resurgent
dollar and if crude oil prices come off following a sharp
rally.
                                
 Commerzbank analyst Eugen Weinberg said both inflation
worries and technical factors were at play, and a stronger
dollar would undercut bullion's rally.
                                
 "Should the dollar rally towards $1.42, $1.43 (versus the
euro) I could imagine gold would suffer," he said.
                                
 OUTPUT RISES
                                
 In supply news, Gold Fields <GFIJ.L>, the world's No. 4
gold producer, said its output of the metal rose 4 percent in
the fourth quarter while production costs fell 6 percent to
$512 an ounce. [ID:nL684662]
                                
 Among other precious metals, silver <XAG=> was at $14.47,
against its previous finish of $14.64.
                                
 The world's largest silver producer, Fresnillo <FRES.L>,
said its board had approved a pre-feasibility study for the
development of its Saucito project in Mexico, which could
produce up to 9 million ounces of silver a year.
                                
 This is equivalent to more than 1.3 percent of annual
global production, which stood at 680.9 million ounces last
year.
                                
 Platinum <XPT=> dropped to $1,259 an ounce against
$1,282.50, while palladium <XPD=> was at $270.5 against $273.
                                
 Traders have taken profits in both metals after they hit
multi-month highs on Wednesday amid talk of a strike at South
African power company Eskom.
                                
 The union said on Thursday it will march to press state
utility Eskom for better wages, as the company braced for a
possible strike that could disrupt power in the world's biggest
platinum producer. [ID:nL6214056]
                                
                      Close  Change   Pct      2008   YTD
                                
                                      Chg    Close Pct Chg
US gold       <GCZ9>     962.90   -3.40  -0.4   884.30    8.9
US silver     <SIU9>     14.645  -0.115  -0.8   11.295   29.7
US platinum   <PLV9>    1263.40  -29.70  -2.3   941.50   34.2
US palladium  <PAU9>     271.10   -8.10  -2.9   188.70   43.7
Prices at 2:33 p.m. EDT (1833 GMT)
Gold          <XAU=>     957.80   -4.15  -0.4  878.200    9.1
Silver        <XAG=>      14.47   -0.17  -1.2    11.30   28.1
Platinum      <XPT=>    1259.00  -23.50  -1.8   924.50   36.2
Palladium     <XPD=>     270.50   -2.50  -0.9   184.50   46.6
Gold Fix      <XAUFIX=>  964.00    3.25   0.3   836.50   15.2
Silver Fix    <XAGFIX=>  14.670   0.000   0.0   14.760   -0.6
Platinum Fix  <XPTFIX=> 1281.00    0.00   0.0  1529.00  -16.2
Palladium Fix <XPDFIX=>  273.00    0.00   0.0   365.00  -25.2
 (Additional reporting by Catherine Bosley in London)