* European finmins decide $1 trln euro zone rescue package
* Rise in risk appetite takes heat out of safe-haven buying
* Strength in euro, commodities underpins gold
* Platinum, palladium climb as fundamentals return to fore
(Updates prices)
By Jan Harvey
LONDON, May 10 (Reuters) - Gold cut early losses of nearly 2
percent on Monday amid expectations a $1 trillion aid package
aimed at alleviating the euro zone's debt crisis could cement
easier monetary policy, and potentially 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 later pared those losses, briefly rising
back above $1,200, as dollar weakness also helped prices.
Spot gold <XAU=> was bid at $1,198.65 an ounce at 1504 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 $11.20 to $1,199.20 an ounce.
"Today we are seeing a reversal of previous safe-haven
flows," said Tobias Merath, an analyst at Credit Suisse. "The
medium-term consequence of what is going on is probably easier
monetary policy."
"Monetary tightening was on the horizon, and now this is
likely to postponed," he said. "That is positive for gold, as
interest rates are opportunity costs for non-yielding assets."
The global emergency rescue package to stabilise the euro
reversed a sharp decline in world financial markets on Monday.
The euro <EUR=> rose, European shares climbed nearly 7 percent
and the S&P 500 jumped more than 4 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. []
But the package 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 to their highs on Monday, 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 percent and platinum <XPT=> up 2 percent at
their day highs. 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 as hopes for a
recovery in car demand boosted buying, before correcting.
Platinum was later at $1,686 an ounce against $1,656.50, and
palladium at $516 against $510.
"Platinum and palladium have been acute losers in the
risk-off (risk-averse) 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 $18.52 an ounce against $18.30.
(Reporting by Jan Harvey; Editing by William Hardy)
