* Gold's appeal boosted by worries about U.S. bailout plan
* Expectations of further dollar weakness also buoy prices
* Market looks ahead to Indian festival season
(Releads, adds detail, updates prices)
By Pratima Desai
LONDON, Sept 25 (Reuters) - Gold came under selling pressure
on Thursday but analysts expect prices to be supported by fears
the $700 billion bailout plan for investment banks in the United
States could be derailed by Congress.
Spot gold <XAU=> was at $871.60/873.60 an ounce at 1455 GMT
compared with $881.00 late in New York on Wednesday. Earlier on
Thursday it rose nearly 2 percent to $896.60 an ounce.
It fell more than 2 percent to $862.85 an ounce after the
U.S. open as equity markets firmed and traders sold to cover
positions related to the expiry of gold options -- contracts
which give holders the right to buy or sell at fixed prices.
The metal has gained about 20 percent since Sept. 11, when a
collapse in the share price of U.S. investment bank Lehman
Brothers <LEHMQ.PK> raised questions about the stability of the
U.S. and global banking system.
"Weekends recently have tended to be perilous times," said
Nick Moore, commodities strategist at RBS. "There is concern
that the weekend could bring fresh concerns about the bailout
plan because of political dragging."
The U.S. Congress is close to reaching a deal to approve the
package, but investors are wary. []
Gold is used as hedge against financial chaos.
Also a positive for gold is an expectation of further dollar
weakness, which normally boosts gold as it makes commodities
priced in dollars cheaper for holders of other currencies.
But this time, there is the added element of investors using
the precious metal as an alternative currency. []
"Gold prices are rising as the era of loose credit draws to
a close and the ensuing global crisis leaves few solid
instruments for cautious investors to hold onto," said
investment bank Fairfax in a note.
WEDDINGS AND FESTIVALS
Looking ahead, gold is likely to be supported by physical
demand from the world's largest consumer India, which is
approaching its traditional wedding and festival season.
Also on the agenda is the end of the fourth year of the
Central Bank Gold Agreement on Friday.
The World Gold Council said last month around 319 tonnes of
gold have been sold so far by the European Central Banks that
signed the agreement, out of a quota of 500 tonnes allowed in
each year.
"It will be interesting to see how much of the allocation
has been taken," Moore said. "It looks as if it could be fully
taken up."
While that news may temporarily faze the market, it is
unlikely to do any lasting damage to confidence in gold's
ability to weather the financial and economic storms.
"Given the weaker U.S. economic and dollar outlook,
increased safe-haven demand and improved technical picture gold
is in a strong position to push higher and challenge overhead
resistance located at $925/938/945," TheBullionDesk.com said in
a note.
A measure of investor interest in gold is the record
holdings in SPDR Gold Trust <GLD>, the world's largest
gold-backed exchange-traded fund, which on September 23 to a
record 724.94 tonnes. <XAUEXT-NYS-TT>.
"It's a lagging indicator, but useful to see the trend," a
trader said.
SPDR has seen its holdings increase by 18 percent or
more than 100 tonnes since Sept. 15.
Platinum <XPT=> was at $1,179/1199 from $1,192.50 late on
Wednesday, palladium <XPD=> at $234/242 from $246 and silver at
<XAG=> at $13.31/13.39 from $13.21.
(Additional reporting by Lewa Pardomuan; editing by Karen
Foster)
