Gold pares gains; Mideast, euro zone worry support

NEW YORK (Reuters) - Gold pared gains after rising toward its record high on Wednesday, as a pullback in crude oil prices offset safe-haven buying inspired by mounting unrest across the Arab world and renewed euro zone debt worries.

Gold largely tracked movements in oil, which rose earlier in the session as pro-democracy protests spread from Libya to Yemen and Kuwait, prompting worries that outweighed OPEC assurances of ample spare capacity.

U.S. crude oil later ended lower.

"Crude oil is really trading as the barometer of fear right now, and the lack of follow through in the upside of crude is taking some of the flight-of-quality aspect out of the gold market right now," said Adam Klopfenstein, senior market strategist of MF Global's Lind-Waldock.

Gold prices are underpinned by weaker global equity markets as Portugal's cost of borrowing hit a new high ahead of Friday's euro zone summit to resolve the region's debt crisis. Analysts, however, said the meeting is unlikely to produce a breakthrough.

Spot gold gained 0.2 percent to $1,429.60 an ounce by 3:15 p.m. EST (2015 GMT). U.S. gold futures for April delivery rose $2.40 an ounce to settle at $1,429.60.

Sentiment among bullion investors improved on news that PIMCO's Total Return Fund (PTTRX.O), the world's biggest bond fund, has dumped all U.S. government-related securities, including U.S. Treasuries and agency debt, sources told Reuters. The move boosted gold's status as a hedge against U.S. dollar depreciation and inflation.

The metal also rose against other major currencies due to lingering worries over global economic recovery.

Euro-priced gold was set for a fourth daily rally, its strongest run in two months, while gold priced in Japanese yen reached its highest since at least 1983.

Dennis Gartman, author of the Gartman letter, a daily investment newsletter, said that technical charts of euro-priced gold resembled a bullish "flag" formation, indicating prices could rise further.

The goal for Friday's euro zone summit, to be attended by 17 heads of state, is to agree a competitiveness pact to be adopted by the bloc members to show their commitment to overhauling their economies.

"The market is really eager to find out how this whole debt crisis in Europe is settled," said Credit Agricole analyst Robin Bhar. "It's been lingering on for a long, long time."

Concern over euro zone sovereign debt was a major factor driving gold's 30 percent price rise in 2010. It has since extended gains to a record $1,444.40 an ounce set Monday, largely on safe-haven buying linked to unrest in the Middle East region.

LIBYA UNREST

Violence continued in Libya, underpinning gold, which has risen nearly 10 percent in seven weeks. Over that period, protests in Tunisia and Egypt spread to other parts of the Middle East and North Africa, triggering a 20-percent rise in crude oil, which increased bullion's appeal as an inflation hedge.

Some of the world's largest exchange-traded funds have boosted gold holdings more than 340,000 ounces so far this week to over 61 million ounces.

Silver rose for a fourth consecutive session, rising 0.1 percent to $36.03 an ounce on tightness in near-term supplies and continued inflows into ETFs.

Platinum eased 0.2 percent at $1,799.24 an ounce, while palladium lost 1.5 percent to $777.72.

(Additional reporting by Amanda Cooper and Jan Harvey in London; Editing by David Gregorio and Sofina Mirza-Reid)