PRECIOUS-Gold off highs as mkts fall; haven appeal supports

                                
  * AIG seeks cash injection, HSBC unveils rights issue
* SPDR gold ETF holdings unchanged, iShares Silver dips
(Updates throughout, adds comment)
                                
 By Jan Harvey
                                
 LONDON, March 2 (Reuters) - Gold retreated from highs in
Europe on Monday as financial markets wilted, but remains
underpinned by interest in the metal as a haven from risk.
                                
 The metal earlier climbed 2 percent as equities tumbled
after insurer American International Group reported the largest
quarterly loss in U.S. corporate history and HSBC <HSBC.L>
announced Britain's largest ever rights issue. [ID:nL2187983]
                                
 However, gold's recovery was capped as some investors cashed
in gains above $950 an ounce, analysts said.
                                
 "All the equity indices are down, all the equity futures are
down," said Michael Widmer, an analyst at BNP Paribas. "Given
the size of some of the declines we are seeing, there has been
some profit taking on gold."
                                
 Spot gold <XAU=> was at $947.50/949.50 an ounce at 1307 GMT
against $939.90 late on Friday, having hit a high of $958.00.
                                
 U.S. gold futures for April delivery <GCJ9> on the COMEX
division of the New York Mercantile Exchange rose $7.00 to
$949.50 an ounce, down from a peak of $959.50.
                                
 As gold is still holding onto some gains, Widmer said, its
upward momentum is unlikely to have been broken for long.
                                
 "Once the immediate volatility in the markets settles down,
we tend to see that gold prices benefit from all these problems,
but not in the short term," he said.
                                
 World stocks slid to a near six-year low on Monday, with the
MSCI world equity index <.MIWD00000PUS> falling 2.1 percent.
                                
 AIG reported a $61.7 billion quarterly loss on Monday, and
is set to take a $30 billion lifeline from the U.S. government,
its third bailout package, sources said. [ID:nN02381406]
                                
 Britain's FTSE 100 <.FTSE> fell 4.6 percent on the news, and
after HSBC launched a 12.85 billion pound-rights issue to help
it overcome big losses in the United States. [ID:nL2251707]
                                
 Wall Street is also set to slide at the open, with U.S.
stock index futures tumbling on the AIG news. [[ID:nN02386376]
                                
 The dollar firmed against most currencies as investors said
the U.S. unit looked less risky than other monies.
[ID:nL2192505]
                                
 A stronger dollar typically weighs on gold, but both assets
are currently benefiting from risk aversion. "Nervousness in the
financial sector is the single most important factor behind
gold's strength," said Commerzbank analyst Eugen Weinberg.
                                
 Meanwhile oil slid more than 5 percent on Monday after a
spate of poor economic data fuelled demand fears. [ID:nL2397521]
                                
 The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Trust <GLD>, said it saw no fresh inflows on
Friday, though its holdings are at record levels. [ID:nT124285]
                                
 
                                
 TRANCHE
                                
 Buying by bullion ETFs, which issue securities backed by
physical gold, has formed a major tranche of demand since the
beginning of the year. However, these inflows waned last week.
                                
 "If ETF inflows remain absent from the market, we suspect
that gold can test lower levels in the days to come," said UBS
strategist John Reade in a note.
                                
 "But it is worth noting that our U.S. ETF desk reported the
strongest buying interest for weeks on Friday, all from
retail buyers," he added.
                                
 He said that if this became a stronger trend in the market
it could mark the end of the correction in gold.
                                
 The metal will have to build on earlier gains if it is to
keep its upward move on track. "Accelerated gains cannot be
ascertained unless gold sustains above $960 on a closing basis,"
said senior Richcomm Global Services analyst Pradeep Unni.
                                
 Analysts say they are watching a raft of key data due out
this week for clues as to the next direction of the markets.
U.S. ISM manufacturing data for February is due out at 1500 GMT.
                                
 China and the euro zone have already reported declines in
manufacturing activity that month, with euro zone manufacturers
suffering their worst month in 12 years. [ID:nL2213083]
                                
 Among other precious metals, spot silver <XAG=> rose to
$13.14/13.20 an ounce from $13.05.
                                
 Buying by silver ETFs has also been key to keeping prices
high. However, the world's largest such fund, the iShares Silver
Trust <SLV>, reported its first outflow since Jan. 5 on Friday,
though its holdings remain at high levels. [ID:nL2169059]
                                
 Platinum <XPT=> was at $1,085.50/1,090.50 an ounce from
$1,071, while palladium <XPD=> was at $194.50/199.50 an ounce
from $193.50.
                                
 (Reporting by Jan Harvey; Editing by Peter Blackburn)