* Gold boosted as dollar extends losses vs euro
* U.S. consumer prices slowed to half-century low in 2008
* SPDR, iShares ETFs reach record levels
(Recasts, updates with quotes, closing prices; adds NEW YORK
dateline/byline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Jan 16 (Reuters) - Gold prices rose nearly
3 percent on Friday, breaking above $840 an ounce, on a sharply
lower dollar against the euro, lingering economic worries and
signs of strengthening investment demand.
Spot gold <XAU=> was at $840.30 an ounce at 2:55 p.m. EST
(1955 GMT), up 2.8 percent from the last trade of $817.45 on
Thursday.
U.S. gold for February delivery <GCG9> settled up $32.60,
or 4 percent, at $839.90 an ounce on the COMEX division of the
New York Mercantile Exchange.
U.S. metals markets will shut Monday for the Martin Luther
King Jr. holiday and reopen for regular trade Tuesday.
Gold ignored short-term deflation concerns. U.S. inflation
slowed to a half-century low last year, with the Consumer Price
Index dropping a sharp 0.7 percent in December, a third
straight monthly decline. []
"The fall in headline CPI was a bit less than the market
had priced in, and core CPI was unchanged, so that was
supportive of gold," said Dresdner Kleinwort consultant Peter
Fertig.
A recovery in the euro and the equity markets was
supporting the precious metal, he added.
The dollar extended losses versus the euro after the
government report showing a continued drop in U.S. consumer
prices, helping revive appetite for other currencies. []
In addition to the weak dollar, interest in bullion as a
haven from risk was also lifting gold, analysts said.
"Risk aversion is high," said Commerzbank analyst Eugen
Weinberg. "People are looking at gold right now as a real hedge
against everything -- an alternative asset."
Weakness in the banking sector, with Bank of America and
Citigroup reporting large fourth-quarter losses on Friday, was
increasing investor jitters and further supporting gold, he
added.
"The more problems we see in the banking sector, and the
financial sector in general, the more attractive gold as a
hedge against such risk will be," he said.
GOLD, SILVER ETFs HIT RECORD
Investment demand for physical gold remains strong as
turmoil in the financial markets and fears over the outlook for
the global economy boost bullion's appeal.
The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Trust, said its holdings rose on Thursday to a
record 795.25 tonnes. []
Demand for physical gold from ETFs has been a major factor
supporting prices in recent years. In December, SPDR overtook
the Bank of Japan as the world's seventh largest holder of
gold.
The world's largest silver-backed ETF, the iShares Silver
Trust, said its holdings climbed 1 percent to a record 7,143.27
tonnes on Jan. 14. []
Strength in demand for silver bullion from ETFs is helping
to outweigh falling demand in other areas, analysts said.
Spot silver <XAG=> was at $11.23 an ounce, up 6.1 percent
from its previous session close of $10.58.
Among other precious metals, platinum and palladium were
steady, benefiting from gold's strength and the dollar's
weakness, but picking up little fresh momentum as traders
continue to worry about the outlook for demand.
Spot platinum <XPT=> was at $946.50 an ounce, up 2.6
percent from its $922.50 finish in New York late on Thursday,
while spot palladium <XPD=> was at $183.00 an ounce, 3.4
percent higher than its $177 previous close on Thursday.
(Editing by Walter Bagley)
