* Gold up more than 2 pct as oil soars
* Equity weakness prompts safe haven buying
* Dollar strengthens after data but struggles to hold gains
(Recasts, updates throughout)
By Jan Harvey
LONDON, July 1 (Reuters) - Gold spiked up more than 2
percent in Europe to a 10-week high on Tuesday as rising oil
prices fuelled buying of the precious metal as an inflation
hedge.
Weak stock markets also increased gold's appeal as an
alternative investment, further buoying prices, traders said.
Gold <XAU=> rose to $940.00/941.00 an ounce at 1458 GMT from
$925.95/927.15 in New York late on Monday. Earlier, it touched a
session high of $944.90, its strongest level since April 18.
"Oil is strong," said Commerzbank trader Michael Kempinski,
adding that inflation is a continuing worry.
"There has also been a bit of safe-haven buying as the
European stock markets have crashed," he added.
Oil prices resumed their move higher, trading up more than
$3 a barrel at their session high on Tuesday after a report from
the International Energy Agency forecast oil supply would remain
tight. []
High oil prices are fuelling fears of inflation, against
which gold is often bought as a hedge. Strength in oil also
tends to stimulate interest in commodities as an asset class.
Equity market weakness is also fuelling buying of gold as a
safe haven.
The FTSEEurofirst 300 index <> was down 1.7 percent at
1403 GMT, while U.S. stocks opened lower on Tuesday on concerns
over rising oil prices and the outlook for financial stocks.
[]
Meanwhile the dollar was steady against the euro for much of
the day, before strengthening after a report showed U.S.
manufacturing activity was stronger than expected in June.
[]
However, it has since given up those gains and is trading
little changed on the day.
Traders are also looking ahead to the European Central
Bank's upcoming decision on interest rates, due Thursday.
Speculation over interest rates on both sides of the Atlantic
has had a significant impact on gold.
"The outlook for prices increasingly relies on the U.S.
dollar, interest rates and perceptions about whether the FOMC
has the intestinal fortitude to lift rates in the August /
September window," said JP Morgan analyst Michael Jansen.
"The market has recently cast more doubt about the Fed's
inflation fighting credentials following the release of the FOMC
statement last week, and this in turn has allowed the gold price
to move materially higher."
Investment bank UBS said on Monday it was raising its
average gold price forecast for 2008 to an average $895 an
ounce, against its previous forecast for $851, citing rising oil
prices and the sluggish recovery of the U.S. dollar.
It also upped its outlook for silver to $17.00 from $15.76,
for platinum to $2,010 from $1,853 and for palladium to $460
from $370. It raised its projected price of rhodium for the full
year to $9,413 from $7,794.
In fundamental news, the ECB said on Tuesday it completed
gold sales of 30 tonnes on June 30, and added that it had no
plans to sell more gold in this year of the agreement, which
runs until September. []
Among other precious metals, spot platinum <XPT=> was little
changed at $2,061.50/2,081.50 an ounce from $2,060.00/2,080.00
late in New York.
The metal is benefiting from expectations a smelter shutdown
at major platinum producer Lonmin will affect supply.
Spot palladium <XPD=> was steady at $462.00/470.00 an ounce
against $459.00/467.00, while silver <XAG=> rose to $17.87/17.93
an ounce from $17.38/17.43 late in New York.
(Reporting by Jan Harvey; editing by Christopher Johnson)
