Gold up as falling stocks spur flight to safety

By Jan Harvey

LONDON (Reuters) - Gold climbed 2 percent to a 2-1/2 month high in Europe on Friday as tumbling stock markets prompted investors to seek safer assets such as bullion.

Spot gold was quoted at $918.15/921.65 an ounce at 0929 GMT against $911.50 an ounce late in New York on Thursday. Earlier it touched a session high of $931 an ounce, its strongest level since July 29.

"The weakness in the stock markets in Europe sent gold higher to take out the $930 level," said Peter Fertig, a consultant at Dresdner Kleinwort. "But as equities recovered from initial lows, gold came down a little."

"Currently it is fear that is dominating," he added. "We are seeing a flight to safety. It is only gold that shines."

European stocks slid at the open, tracking losses in Asia and on Wall Street late Thursday, as investors worried concerted efforts from governments and central banks to stabilise the financial markets would fail to avert recession.

Losses in Europe reflected panic selling in Asia. The benchmark world equity index, MSCI, fell to a five-year trough.

Equity trading in Russia, Iceland, Romania, Ukraine, Indonesia and Austria was halted, while nearly half of Milan stocks are suspended for excessive losses.

Banks led the decline among European stocks, with oil shares also tumbling as crude oil prices fell.