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Gold climbs as dollar slides, oil jumps
LONDON (Reuters) - Gold rose almost 2 percent on Friday, recovering from earlier losses, as the dollar slipped sharply versus the euro and oil rallied more than $7 a barrel.
Gold slipped more than 3 percent earlier in the session after the U.S. government said pledged $50 billion to guarantee money-market mutual funds, curbed short-selling and crafted a sweeping plan to mop up toxic mortgage debt, sending global stock markets soaring.
However, a turnaround in the foreign exchange markets that sent the euro to session highs against the dollar, coupled with a sharp rise in the oil price, helped the metal rally to a day high of $868.65 per ounce.
At New York's last quote of 2:25 p.m. EDT (1825 GMT), spot gold was at $862.20/866.20, against $847.25 an ounce at the nominal New York close on Thursday.
The euro gained ground against the dollar and crude prices rallied as investors digested the implications of a mooted U.S. government plan to deal with toxic bank assets.
A weaker dollar typically benefits gold, which is often bought as a currency hedge.
"The impact of the plan has been for the dollar to weaken, and essentially that has been the catalyst for a move up in all markets," said Calyon analyst Robin Bhar.
"Equities are exploding, base metals are higher and gold as well has taken part."
Sharply higher global markets also prompted investors to switch funds to the equities from the commodity sector.
Leonard Kaplan, president of Prospector Asset Management, said that while the U.S. government bailout plan was highly inflationary, it would take gold traders time to sift through the potential implications of the various proposals.
U.S. gold contract for December delivery settled down $32.30, or 3.6 percent, at $864.70 an ounce on the COMEX division of the New York Mercantile Exchange.
Gold has benefited from a wave of risk aversion that has hit the markets this week after U.S. investment bank Lehman Brothers filed for bankruptcy protection on Monday.
Prices soared nearly $140 an ounce from last Friday's nominal New York close to this week's high, while Wednesday saw the largest one-day dollar gold price rise in history.
The metal rallied above $900 an ounce in late Thursday trade as investors fled rocky equity markets for safer assets such as bullion.
Analysts say gold in the longer term may benefit from continued uncertainty surrounding the financial sector, as well as tight underlying fundamentals.
Investment demand remains firm, with the world's largest bullion-backed exchange-traded fund, the SPDR Gold Trust, reporting a further 4.5 tonne inflow on Thursday. Its holdings have risen nearly 7 percent since Monday.
Demand for gold jewellery, coins and bars is also expected to pick up as the festival season gets underway in major consumer India, although high prices may curb buying.
Among other precious metals, silver rallied 5 percent in gold's wake to a session high of $12.53, before settling back to $12.38/12.43 from its Thursday nominal close of $11.84.
Platinum also rose sharply, tracking gold higher. Spot platinum last quoted at $1,126.00/1,166.00, against $1,089.00 at the nominal New York close on Thursday.
Spot palladium was at $231.50/241.50 against $230.00, up from a session low of $221.00.
"We see value emerging again in the PGMs, especially in palladium which is near range lows amidst a market that is running down its above-ground inventory and talk of mine stress continues to build in Russia," said JP Morgan analyst Michael Jansen in a note.
(Additional reporting by Frank Tang in New York)
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