* Markets eye developments at Japan nuclear plant
* Violence sweeps Libya, Bahrain
* Platinum recovers but investors worry over Japan demand
(Updates prices)
By Amanda Cooper and Jan Harvey
LONDON, March 16 (Reuters) - Gold rose on Wednesday as
investors took advantage of the previous day's 2 percent price
drop to buy the metal and as the extreme risk aversion that
prompted a flight to liquidity on Tuesday eased.
Spot gold <XAU=> was last up 0.7 percent at $1,403.85 an
ounce at 1435 GMT, while U.S. gold futures for April delivery
<GCJ1> rose 0.8 percent to $1,403.80.
Prices fell 2.3 percent on Tuesday in their biggest one-day
drop since January. They have since steadied as markets await
news from Japan, where experts are working to avert a meltdown
at a nuclear power plant. []
"Now that the dust has settled a little bit and that we've
had particularly a recovery in energy and other commodities,
that's given a tailwind to gold," said HSBC analyst James Steel.
"If the focus ceases to be entirely on Japan, and the Middle
East again gets some headlines, then the geopolitical risk
levels will come back in and support gold," he said.
Other traditional safe-haven assets also rallied, with the
Swiss franc <CHF=> hitting a record high against the dollar and
benchmark U.S. Treasury yields <US10YT=RR> touching their lowest
in three months after housing data highlighted the fragility of
the U.S. economic recovery. []
Unrest that swept the Middle East and North Africa earlier
this year, a key factor pushing gold to a record $1,444.40 an
ounce last week, continues to simmer.
The Libyan army closed in on the opposition bastion of
Benghazi on Wednesday, while in Bahrain forces fired tear gas in
a crackdown on protesters. [] []
"Gold may recover and stabilise, but there could be more
downward pressure," said Quantitative Commodity Research
consultant Peter Fertig. "It all depends on how tactical people
are in managing the situation at the Fukushima nuclear power
plant.
"It is currently all eyes on Japan, but also have an eye on
the situation in the Middle East, which has been eclipsed by the
developments in Japan," he added.
TWIN SHOCKS
"The twin shocks of Middle Eastern political uprisings and
the largest earthquake ever to hit Japan have increased downside
risks to global growth and metals prices in the short term,"
said Barclays Capital in a note.
"Until there is more clarity on these events and how
policymakers will respond to inflationary pressures, prices of
growth-sensitive assets ... will likely struggle, while safe
havens such as gold should outperform."
Gold normally gains when investors become nervous but tends
to fall when risk aversion becomes extreme, and holders are
forced to sell the metal to cover losses on other markets or
seek the greater liquidity of cash.
The dollar fell to a four-month low against the yen <JPY=>,
which has been buoyed by steady buying since the earthquake,
while the euro <EUR=> slipped after Moody's downgraded
Portugal's sovereign rating. [] []
Interest in gold exchange-traded funds remained lacklustre,
with holdings of the largest, New York's SPDR Gold Trust <GLD>,
edging down by another 0.9 tonnes on Tuesday to a 10-month low,
continuing a trend seen throughout this year. []
Holdings of the U.S. based palladium exchange-traded product
declined by 4.3 percent on Tuesday, meanwhile. []
Platinum and palladium prices also recovered on Wednesday,
but buyers remain nervous on fears the earthquake in Japan could
hurt demand for the metals used in auto catalysts.
Platinum <XPT=> was last up 1.1 percent at $1,719.49 an
ounce against $1,700, while palladium <XPD=> was at $715.00
against $704.50. Silver <XAG=> was bid at $34.89 an ounce
against $34.29.
(Editing by Jane Baird)
