* Risk aversion, technical support lifts gold from lows
* Dollar leaps after Fed lifts emergency lending rate
* Buying interest slack in major consumer India
(Releads, updates prices)
By Jan Harvey
LONDON, Feb 19 (Reuters) - Gold prices recovered early
losses in Europe on Friday to trade little changed from the
previous session as investors bought the precious metal to hedge
against volatility in the foreign exchange markets.
Spot gold <XAU=> was bid at $1,111.45 an ounce at 1219 GMT
against $1,111.40 late in New York on Thursday, well off an
earlier low of $1,098.55.
The metal slipped 1 percent in Asia but met buying interest
in early European trade amid fears over instability in the
currency markets. The euro is suffering from dollar strength and
concern over the fiscal health of smaller euro zone economies.
"Gold is benefiting firstly from its value as a defensive
investment, and secondly from the marked improvement in the
technical picture, which emerged at the start of the week," said
Mitsubishi precious metals strategist Tom Kendall.
U.S. gold futures for April delivery <GCJ0> on the COMEX
division of the New York Mercantile Exchange eased $8.80 to
$1,109.02 an ounce.
Gold's usual relationship with the U.S. dollar -- strength
in which normally pressures the precious metal -- has weakened
as fears over the outlook for paper currencies in general lifted
interest in bullion as an alternative asset.
The dollar hit an eight-month high against a currency basket
on Friday, extending gains after the Federal Reserve's surprise
decision to raise its discount rate, its first hike in the rate
since mid-2006. []
In its first interest rate move since December 2008, the Fed
lifted the emergency lending rate it charges banks to 0.75
percent from 0.5 percent, but insisted borrowing costs would not
rise for consumers or companies. []
"This development...is near-term gold-bearish, as it reduces
liquidity," said HSBC analyst Jim Steel in a note. "Highly
accommodative monetary policies have been an important element
in the gold rally."
He noted, however, the Fed's assertion that the change was
not expected to lead to tighter financial conditions or lead to
a change in the outlook for monetary policy.
"If this implies monetary policy will remain lax, then the
sell-off may be brief," he said.
COMMODITIES SUFFER
On the wider markets, European shares snapped a four-day
winning streak to fall as banks suffered after the Fed
announcement, while world stocks declined. [] []
Among other commodities, oil prices were down $1 a barrel in
the wake of the Fed move, which stirred fears that monetary
tightening could slow demand growth in the world's largest oil
consumer and stem investment flows into commodities. []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation. Industrial metals prices
also slipped. []
Physical demand for the precious metal was relatively
lacklustre, with holdings of the world's largest gold-backed
exchange-traded fund, New York's SPDR Gold Trust <GLD>,
unchanged for a second session on Thursday. []
Meanwhile buying in India, the world's biggest gold
consumer, slackened. "Caution typically sets in after a big
fall," said one Mumbai-based gold dealer. []
Among other precious metals, silver <XAG=> was at $16.00 an
ounce against $15.84, platinum <XPT=> at $1,505.50 an ounce
against $1,514, and palladium <XPD=> at $428 against $429.50.
"Both (platinum group) metals are trading lower this morning
as a result of the Fed news and will continue to monitor
currency moves for short-term direction," said James Moore, an
analyst at TheBullionDesk.com, in a note.
(Editing by Sue Thomas)
