* Political uncertainty pushes gold to three-month high
* Euro weakens vs dollar, options show big bias for weaker euro
* French bond yield spread over Germany widest since late 2012
* Wall St flat, stocks rise in Europe (Adds oil settlement prices; updates U.S. and European stocks)
By Hilary Russ
NEW YORK, Feb 8 (Reuters) - Political uncertainty ahead of European elections gave nervous investors a reason to sell the euro and kept French government debt under pressure on Wednesday, while the price of safe-haven gold hit three-month highs.
Wall Street was mixed and European shares closed slightly higher, while oil prices edged up after a surprise draw in gasoline stockpiles and investors covered short positions.
The Dow Jones Industrial Average fell 33.8 points, or 0.17 percent, to 20,056.49, the S&P 500 gained 1.73 points, or 0.08 percent, to 2,294.81 and the Nasdaq Composite added 8.59 points, or 0.15 percent, to 5,682.80.
The U.S. dollar, whose predicted path higher has been interrupted lately by uncertainty over U.S. President Donald Trump’s economic policies, ticked up 0.05 percent against a basket of other major currencies.
Investors are still waiting to see whether Trump makes good on his campaign pledges to cut taxes and boost spending.
“Markets know that if Trump was to come out and start talking about tax reform and infrastructure spending, the dollar would go up. The dollar rose a long way at the end of last year; it has come back, now we are sitting around waiting for the next steer,” said Gavin Friend, a strategist with National Australia Bank in London.
The euro also recovered and was nearly flat at $1.0682 after a sharp fall on Tuesday.
Oil prices gained slightly as investors covered short positions after a rise in U.S. crude inventories was not as massive as many had feared, while gasoline futures jumped nearly 4 percent after a surprise decline in inventories of the fuel.
U.S. crude oil futures settled at $52.34 a barrel, up 17 cents or 0.33 percent. Brent settled up 0.13 percent, or 7 cents, at $55.12.
“The crude oil inventory build was really terrible for the market but the market does not seem to care because the products inventories were better than expected and are dragging crude oil prices up with it,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
Three months before the final round of France’s presidential election, investors are concerned about the strong showing of far-right candidate Marine Le Pen, who has promised to take France out of the euro zone and hold a referendum on European Union membership.
Euro zone government bond yields fell broadly, though French debt lagged the rest with 10-year yields falling three basis points to 1.1 percent but remaining not far off 17-month highs touched on Monday. Low-risk German equivalents fell 5.4 basis points to 0.31 percent, a two-week low.
This pushed the spread between the two yields at one point to more than 78 basis points, its widest since November 2012, a move that was also fuelled by expectations that the European Central Bank’s bond-buying stimulus scheme has peaked.
“If you step back, the big picture still remains - that of political concerns in Europe concomitant with speculation over ECB tapering,” said Rabobank’s head of rates strategy Richard McGuire.
The premium investors demand to hold low-rated Italian 10-year bonds rather than German Bunds hit its highest since 2014.
Apart from German debt, investors also bought gold, which is seen as a safe investment. Spot gold hit a three-month high of $1,244.67 an ounce before paring gains to $1,239.70.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Additional reporting by Nigel Stephenson and Ahmad Ghaddar in London, Yashaswini Swamynathan in Bengaluru, and Devika Krishna Kumar in New York; Editing by Clive McKeef and James Dalgleish