* Risk aversion, technical support lifts gold from lows
* Euro-priced gold hits record high at 826.35 euros/oz
* Dollar leaps after Fed lifts emergency lending rate
(Updates prices)
By Jan Harvey
LONDON, Feb 19 (Reuters) - Gold firmed in Europe on Friday,
having recovered early losses related to a surge in the dollar,
as investors bought the metal to hedge against volatility in the
foreign exchange markets and sovereign risk in the euro zone.
Gold priced in euros <XAUEUR=R> hit a record high of 826.35
euros an ounce as investors sought to diversify away from the
beleaguered single currency.
Spot gold <XAU=> was bid at $1,116.35 an ounce at 1601 GMT
against $1,111.40 late in New York on Thursday, having earlier
touched a low of $1,098.55.
Gold slipped 1 percent in Asia but met buying interest in
European trade amid fears over currency market instability. The
euro is suffering from dollar strength and concern over the
fiscal health of smaller euro zone economies.
"In the euro zone, we have seen better demand in the last
few days than before," said Deutsche Bank trader Michael
Blumenroth. "People want to buy something to be on the safe side
in case the euro declines further."
U.S. gold futures for April delivery <GCJ0> on the COMEX
division of the New York Mercantile Exchange were down $3.00 to
$1,115.00 an ounce.
Gold's usual relationship with the U.S. currency -- strength
in which normally weighs on 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 <.DXY> 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. []
EMERGENCY LENDING
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.
On the wider markets, European shares snapped a four-day
winning streak to fall as banks suffered after the Fed
announcement, while U.S. stocks slipped at the open. [] []
Among other commodities, oil prices recovered after earlier
falling $1 a barrel in the wake of the Fed move. Gold tends to
track crude prices, as the metal can be bought as a hedge
against oil-led inflation. []
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. []
Buying in India, the world's biggest gold consumer,
slackened. "Caution typically sets in after a big fall," said
one Mumbai-based gold dealer. []
Silver <XAG=> was at $16.08 an ounce against $15.84,
platinum <XPT=> at $1,513.50 an ounce against $1,514, and
palladium <XPD=> at $434 against $429.50.
(Editing by William Hardy)
