* European finmins decide $1 trln euro zone rescue package
* Rise in risk appetite takes heat out of safe-haven buying
* Inflation worries, rising euro, commods underpin gold
* Platinum, palladium climb as fundamentals return to fore
(Updates prices, adds graphic, detail)
By Jan Harvey
LONDON, May 10 (Reuters) - Gold arrested a slide that
knocked it nearly 2 percent down on Monday as investors feared a
$1 trillion emergency package to prevent a sovereign debt crisis
spreading through the euro zone may ultimately spark inflation.
The metal fell as low at $1,183.85 in early trade as the
package boosted risk appetite, lifting stocks, commodities and
the euro. However it then pared those losses.
Spot gold <XAU=> was bid at $1,194.15 an ounce at 1138 GMT,
against $1,207.75 late in New York on Friday. U.S. gold futures
for June delivery <GCM0> on the COMEX division of the New York
Mercantile Exchange fell $15.70 to $1,194.70 an ounce.
A $1 trillion global emergency rescue package to stabilise
the euro reversed a sharp decline in world financial markets on
Monday. The euro <EUR=> rose nearly 2 percent, while European
shares <> climbed more than 6 percent. [] []
Bund futures fell by more than 200 ticks as markets sold
safe-haven debt after the European Central Bank said it would
buy government bonds as part of a larger rescue deal. []
"Safe-haven buying has tended to lift gold in recent weeks,
and as that comes out of the market we will see gold pull back,"
said Standard Chartered analyst Daniel Smith. "But we expect the
pull-back to be relatively mild. Gold will move higher again."
"The recent rise has clearly been linked to safe-haven
buying but we have also seen gold rally on the back of other
(assets) and commodities," he said, adding that the metal is
likely to benefit from a more inflationary environment.
The package also left longer-term questions about whether
Europe's weakest economies can manage their debt. []
"These measures should... go a long way to reducing money
market tensions and helping the euro over the short-term," said
Credit Agricole in a note.
"The problem is that the package may amount to a 'get out of
jail free' card for European governments," it said. "A pertinent
question is whether the crisis mechanism will keep the pressure
on governments to undertake deficit cutting measures."
PHYSICAL DEMAND PICKS UP
Falling gold prices benefited physical demand, with a 3
percent drop in Indian prices triggering buying of the metal
there ahead of a key festival, dealers said. []
Other commodities largely rallied on news of the European
rescue package in line with assets seen as higher risk. Oil
prices surged 4 percent on Monday, having touched a three-month
low last week, and base metals prices jumped. [] []
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For a graphic showing various commodities' price performance
this year, click on:
http://graphics.thomsonreuters.com/10/CMD_PRFG0510.html
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Industrial precious metals also rose, with palladium <XPD=>
climbing more than 3.5 percent and platinum <XPT=> up 2 percent.
Both reflect strong underlying fundamentals, analysts said.
Palladium rallied to a two-year high and platinum to its
strongest since July 2008 earlier this year, before correcting
sharply, as hopes for a recovery in car demand boosted buying.
Platinum was later at $1,694.50 an ounce against $1,656.50,
and palladium at $527 against $510.
"Platinum and palladium have been acute losers in the
risk-off trading environment in May," said UBS analyst Edel
Tully in a note. "But since last Thursday, tentative signs of
stabilisation have emerged."
"Today we suggest that the EU mega-package will stem
contagion fears and stabilise financial markets, and that the
resulting rise in risk sentiment should lead to a relief rally
across many risk assets, including platinum and palladium."
Silver <XAG=> was at $18.44 an ounce against $18.30.
(Reporting by Jan Harvey; Editing by William Hardy)
