* Gold ends session higher, then drops after Fed rate move
* Investors drop gold to buy U.S. dollars
* Fed discount rate hike improves U.S. economy view
(Recasts with gold reversing gains, analyst comment;
changes byline, dateline, previously NEW YORK/LONDON)
By Alonso Soto
NEW YORK, Feb 18 (Reuters) - Gold fell sharply late on
Thursday, erasing gains as investors cashed in bullion for U.S.
dollars after the Federal Reserve raised a key interest rate.
In after-hours trading, U.S. gold futures for April
delivery <GCJ0> shed $10.20 to bid at $1,110.50 an ounce at
5:07 p.m. EST (2207 GMT). Just before the announcement it was
trading positive after settling lower.
Spot gold <XAU=> was bid at $1,108.05 an ounce at 5:01 p.m.
EST (2201 GMT) after staying above $1,120.00 in New York
afternoon trading. Earlier gold rose to a session high of
$1,123.30 an ounce.
Late in the afternoon, the Federal Reserve said it was
raising its discount rate -- the rate it charges banks for
emergency loans, citing improvement in financial market
conditions.
After the announcement, gold slid as The dollar quickly
jumped to its highest level against the euro since May.
"The fact that the euro has fallen to a new low so soon
after the news puts a lot of pressure on gold overall," said
Frank McGhee, head of precious metals trading at Integrated
Brokerage Services LLC in Chicago. "I think if we limit losses
to another $10 or $15, we might hold in this particular area.
Otherwise we are going to run back down to" three-month lows.
April gold fell below $1,045 an ounce on Feb. 5, its lowest
levels since early November.
Before the Fed announcement, gold rose as investors bought
bullion despite a firmer dollar and news of upcoming gold sales
by the International Monetary Fund.
Debt default worries in Europe had pushed investors toward
gold. The price of gold in euro terms <XAUEUR=R> hit a record
high of 824.27 euros an ounce.
Investors use gold as a hedge against financial turbulence
and inflation. Gold generally has in inverse relationship with
the dollar, which rallied against the euro in a volatile
session. Mixed data fed doubts about the U.S. economy but
failed to offset concern about the euro zone. []
WON'T DUMP IT
The IMF said it would sell 191.3 tonnes of gold to the open
market under a program approved last year to boost resources
for lending. The move has called into question demand for
bullion from official sector buyers. []
The fund said the sales, part of a program launched last
year, will be phased over time to avoid market disruptions.
It left the door open for central banks to keep buying gold
directly, nearly four months after India's purchase of 200
tonnes boosted the country's gold holdings to the 10th largest
among central banks.
Analysts see little interest among central banks to buy
more gold.
Sri Lanka's central bank governor said his bank was
unlikely to buy more gold from the IMF right now as the island
nation has already reached its required reserve level.
[]
Among other precious metals, silver <XAG=> erased gains to
bid at $15.84 an ounce, platinum <XPT=> was bid at $1,513.00 an
ounce against $1,524.50 and palladium <XPD=> at $428.00 from
$433.50.
For a Factbox on central banks' views on gold click on
[]
For a story on Impala Platinum's output click on
[]
For story on Barrick Gold spinning off African assets click
on []
(Reporting by Alonso Soto; Editing by David Gregorio)
