* Gold strengthens as flight to safety resumes
* SPDR Gold ETF sees small inflow to record levels
(Updates throughout, adds reaction to U.S. data)
By Jan Harvey
LONDON, Feb 27 (Reuters) - Gold extended gains to session
highs in Europe on Friday as risk aversion spurred by worse-than-
expected U.S. GDP data and a weakening dollar lifted the metal
from the two-week lows it hit earlier in the day.
Spot gold <XAU=> rose to $957.10/959.10 an ounce at 1354 GMT
from $944.70 late in New York on Thursday. Earlier it touched a
low of $935.70 an ounce.
U.S. gold futures for April delivery <GCJ9> on the COMEX
division of the New York Mercantile Exchange rose $16.60 to
$959.20 an ounce.
Fresh losses in the dollar are supporting the metal,
analysts said, along with fresh safe-haven buying after the
lacklustre U.S. data and as equity markets fell.
"The weakening dollar will be based on fears of even more
money being pumped into the economy, which is positive for
gold," said VM Group analyst Matthew Turner.
Gold is popular among risk-averse investors, as uncertainty
lingers over the outlook for the financial sector.
U.S. government data released Friday showed the world's
biggest economy contracted 6.2 percent in the fourth quarter,
more than the previous reading of a 3.8 percent contraction.
[]
Meanwhile ailing banks in Europe and the United States sank
deeper into state control on Friday as governments fed them more
cash to subsidise lending and kick-start economic activity.
[]
Gold prices had fallen 6 percent this week after reaching an
11-month high above $1,000 an ounce last Friday, as the strong
inflows into gold-backed exchange-traded funds that fuelled the
metal's rally stalled.
Holdings of the world's largest gold ETF, New York's SPDR
Gold Trust <GLD>, were static for much of the week, recording
only a small 0.31-tonne inflow on Thursday. []
"This is not going to be enough to support sentiment in the
gold market, which has now corrected by about 6 percent from its
recent highs," said UBS strategist John Reade in a note.
"(It) will probably continue to decline, at least while the
performance of equities and other risk assets remains less
dreadful than of late," he added.
LACKLUSTRE
As investment flows stalled, the lack of buying in the
jewellery sector -- which accounted for 58 percent of global
demand last year, according to the World Gold Council -- weighed
on prices.
Jewellery demand in India, the world's biggest bullion
market, is lacklustre as buyers await lower prices in the midst
of the wedding season, with a weak rupee making imported gold
expensive.
"There are enquiries but no buyers," said Pinakin Vyaas,
chief manager-treasury with IndusInd Bank in Mumbai. "As the
rupee has depreciated so heavily, the costing is getting
affected." []
India has not imported any gold in February as recent record
prices dampened demand. In the same month last year it imported
23 tonnes of the metal. []
Meanwhile gold inventories monitored by the Shanghai Futures
Exchange meanwhile fell by 27 kg in the week ended Thursday, to
just 6 kg. []
Among the external drivers of gold, oil prices eased more
than 5 percent after posting sharp gains in the previous session
as investors worried about the demand outlook. []
Among other precious metals, spot silver <XAG=> was at
$13.29/13.35 an ounce from $13.10.
Spot platinum <XPT=> was little changed at
$1,063.50/1,068.50 an ounce from $1,050, while spot palladium
<XPD=> was steady at $194.50/198.50 an ounce from $194.
(Editing by Peter Blackburn)
