* Dollar hits fresh two-month highs vs euro on debt crisis
* Portugal adopts budget, denies bailout pressure
* Decision on Irish bailout expected on Sunday
(Adds London closing prices, quote, Irish package)
By Elizabeth Fullerton
LONDON, Nov 26 (Reuters) - Gold fell more than 1 percent on
Friday as the dollar pushed to fresh two-month highs against the
euro on a flight to quality as investors worried that Ireland's
debt crisis would engulf more members of the euro zone.
However, gold losses were limited by some modest safe haven
buying amid investor jitters over the European debt crisis after
a newspaper report that euro zone nations were pressuring
Portugal to follow Ireland's lead and seek a bailout.
Portugal and Germany's finance ministry denied the report.
[]
Spot gold <XAU=> ended London trade 1.28 percent lower at
$1,356.5 an ounce, and despite touching an intraday low of
$1,350.27, it held above a key support level at $1,350. Gold
futures <GCZO> were down around the same amount at $1,355.
Despite ending lower on the day, gold finished the week with
a rise, snapping two consecutive weeks of losses.
"Gold is ... not really marching to any drum at the moment.
There were still worries about Europe and Ireland but gold's
come off because the dollar's strengthened," said David
Thurtell, analyst at Citigroup.
"If a rescue is done for Ireland, I would think gold will
lose some of its bid tone and sell off next week," he added. He
anticipated that bullion should hold above $1,345-50 next week.
Gold's traditional inverse relation to the U.S. dollar broke
down in May this year when the euro zone's debt problems became
apparent, prompting investors to dump the single European
currency, but the dynamic has since reasserted itself.
In euro terms <XAUEUR=R>, gold was easier at 1,024.60 euros
an ounce compared with 1,028.76 euros late on Thursday, but
still firmly above the 1,000 euros mark it broke through on
Monday for the first time in a week.
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For graphic on gold priced in different currencies:
http://r.reuters.com/hyv37q
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EURO WOES
"Gold's still holding well on the crosses which is the
important thing at the moment. I think it's just drifting in
thin quiet Friday conditions as the currency markets move," said
Simon Weeks, a trader at Scotiamocatta.
The euro <EUR=> at one point hit a fresh two-month low of
$1.3200 against a resurgent dollar <USD/> in European trade and
spreads on peripheral euro zone bonds earlier widened against
the 10-year German Bund as the market focused on the possibility
of Ireland's debt crisis being replicated in Spain and Portugal.
Portugal's parliament on Friday approved the final 2011
budget, aimed at sharply reducing the fiscal deficit. Meanwhile,
Spain's Prime Minister Jose Luis Rodriguez Zapatero ruled out a
Spanish bailout in the footsteps of Greece and Ireland.
[]
Adding to an uncertain world political picture, which could
lend gold some support from more risk-averse investors, China
warned on Friday against military acts near its coastline ahead
of U.S.-South Korean naval exercises.
North Korea said that the impending military exercises were
pushing the region towards war. The North shelled a south Korean
island earlier this week. []
"Precious metals are caught between buyers who see them as a
hedge against Korean tension and European sovereign debt
problems, while others have been selling it on the back of the
continued dollar rally," said Ole Hansen, analyst at Saxo Bank.
Ashraf Laidi, chief market strategist at CMC Markets, said
in a report that the prospect of a likely Chinese rate hike was
limiting gold's ability to exploit its position as a safe haven
from the Korean tensions and European debt crisis.
"One of the main differences between today and February-May
(during the Greek debt crisis) is that the role of the Chinese
tightening stands in the way of any prolonged gold buying," he
said, noting that demand for commodities was broadly affected.
China is the world's second-biggest gold consumer after
India and the biggest consumer of base metals and investors are
concerned that one or more rate hikes to dampen rising Chinese
inflation could hit demand for the commodities.
The rest of the precious metals complex also ended weaker.
Silver <XAG=> ended 2.7 percent down at $26.80 having erased
some losses, platinum <XPT=> shed 0.75 percent to $1,643.49 an
ounce and palladium <XPD=> was down over 2 percent at $679.97.
(Editing by Keiron Henderson)
