PRECIOUS-Gold rallies above $940, dollar drops on China news

                                
 * Gold boosted as China requests reserve currency debate
                                
 * Investment demand lags, GLD holdings fall
                                
 * Major automakers posted better U.S. auto sales; PGMs up
 (Recasts, updates with quotes, closing price, China's news on
reserve currency, changes dateline, pvs LONDON)
                                
 By Frank Tang
                                
 NEW YORK, July 1 (Reuters) - Gold climbed above $940 an
ounce on Wednesday, as news that China has asked to debate
proposals for a new global reserve currency sent the dollar
reeling, highlighting the status of gold as a hedge against a
falling U.S. currency.
                                
 Investors have recently viewed the dollar as a safe haven.
In early June, a resurgent greenback had foiled gold's attempt
to break above the $1,000-an-ounce level.
                                
 On Wednesday, China asked to debate proposals for a new
global reserve currency at next week's Group of Eight summit in
Italy and the issue could be referred to briefly in the summit
statement, G8 sources said. [ID:nL1293071]
                                
 "The China news is the factor for today. That was driving
the currencies, which are driving the gold," said Andrew
Montano, a director at bullion dealer ScotiaMocatta in
Toronto.
                                
 There were recent signs that China, which holds vast
reserves of U.S. currency and Treasuries, was considering a
reduction in its exposure to the dollar and to U.S. assets in
case America's ultra-loose fiscal and monetary policy rekindles
inflation and erodes the value of the dollar.
                                
 However, analysts said it was unlikely that the dollar's
reserve currency status would be challenged in the foreseeable
future.
                                
 U.S. August futures <GCQ9> settled up $13.90, or 1.5
percent, at $941.30 an ounce on the COMEX division of the New
York Mercantile Exchange.
                                
 Spot gold <XAU=> traded at $941.05 an ounce at 2:31 p.m.
EDT (1831 GMT), up from $925.85 quoted late in New York on
Wednesday.
                                
 In addition, long-term inflation expectations were boosting
gold's appeal and further data reinforcing those views would
help the metal to build on its gains.
                                
 "The gold market has been firm ever since the Fed announced
the shift to quantitative easing ... That is the reason gold is
above $900 at the moment and not below," said James Steel, an
analyst at HSBC in New York.
                                
 BUYERS WADE IN
                                
 David Wilson, analyst at Societe Generale, said buyers of
physical gold were slowly wading back into the market, while
flows of scrap gold were showing signs of stabilization.
                                
 Holdings by the world's largest gold-backed exchange-traded
fund, the SPDR Gold Trust <GLD>, fell again on Tuesday, this
time by 5.19 tonnes to 1,120.55 tonnes as of June 30. The
holdings are down 13.48 tonnes from a record high on June 1.
[GOL/SPDR]
                                
 SPDR holdings have declined in the past few weeks as a
sense of optimism about the global economy sapped investors'
appetite for bullion as a safe-haven asset. <XAUEXT-NYS-TT>.
                                
 In other precious metals, spot silver <XAG=> rose to $13.74
an ounce against $13.57 in New York, while platinum <XPT=>
gained rose to $1,200 versus $1,172.50 previously and palladium
<XPD=> climbed to $252.00 from $248.00.
                                
 Major automakers posted better U.S. auto sales for June
than in recent months on Wednesday, led by Ford Motor Co <F.N>
as results pointed to signs of some stabilizing in the hard-hit
industry. [ID:nN01515238]
                                
 Commodities research firm CPM Group said that the platinum
market will see a narrower market surplus in 2009 on the back
of strong investment demand from platinum-backed,
exchange-traded funds, but the health of the auto industry will
remain the key to the the metal. [ID:nN01322530]
                                
                      Close  Change   Pct      2008   YTD
                                
                                      Chg    Close Pct Chg
US gold       <GCQ9>     941.30   13.90   1.5   884.30    6.4
US silver     <SIU9>     13.760   0.160   1.2   11.295   21.8
US platinum   <PLV9>    1205.10   19.80   1.7   941.50   28.0
US palladium  <PAU9>     254.85    3.90   1.6   188.70   35.1
Prices at 2:31 p.m. EDT (1831 GMT)
Gold          <XAU=>     941.05   15.20   1.6  878.200    7.2
Silver        <XAG=>      13.74    0.17   1.3    11.30   21.6
Platinum      <XPT=>    1200.00   27.50   2.3   924.50   29.8
Palladium     <XPD=>     252.00    4.00   1.6   184.50   36.6
Gold Fix      <XAUFIX=>  938.25    3.75   0.4   836.50   12.2
Silver Fix    <XAGFIX=>  13.650  -0.290  -2.1   14.760   -7.5
Platinum Fix  <XPTFIX=> 1188.00    0.00   0.0  1529.00  -22.3
Palladium Fix <XPDFIX=>  253.00    0.00   0.0   365.00  -30.7
------------------------------------------------------------
Prices in dollars per ounce.
2008 close for U.S. gold second contract month, U.S. silver and
palladium third contract months and U.S. platinum fourth
contract month.
 (Additional reporting by Nick Vinocur in London and Risa Maeda
in Tokyo; Editing by Christian Wiessner)