Gold ends higher but off 4-month high after oil drop

By Jan Harvey and Frank Tang

LONDON/NEW YORK (Reuters) - Gold ended higher on Tuesday, erasing gains as oil prices plummeted and an initial bullion rally to test $1,000 an ounce failed.

Spot gold was at $975.90/977.90 by New York's last quote at 2:15 p.m. EDT, against $971.20/972.20 late in New York on Monday, but remained well off the four-month high of $987.75 an ounce it hit earlier in the session.

"Oil took a tumble, (and) gold was tracking oil as usual," said one trader at a European bank.

U.S. crude futures dropped as much as $9 a barrel in midmorning trade. It ended down $6.44 at $138.74 a barrel.

However, the precious metal remains underpinned by weakness in the dollar and concern over the outlook for the U.S. financial system, which has sparked a wave of safe-haven buying from investors.

Gold climbed earlier in the session as comments from Federal Reserve Chairman Ben Bernanke weighed on the dollar and triggered a drop in U.S. equity markets, fueling safe-haven buying of the metal.

U.S. stocks slid as much as 2 percent and the dollar wilted after Bernanke said high oil prices, a weaker housing market and tighter credit conditions threaten the economy.

"The problems on the equity markets, uncertainty, and general risk aversion are all bullish for gold at the moment," said Lehman Brothers analyst Michael Widmer.