* Gold sinks almost 3 pct as firm dollar triggers funds
selling
* Silver falls just under 5 pct in gold's wake
* Investors eye Fed decision on interest rates due
Wednesday
(Recasts, updates prices market activity; adds second byline
and dateline, previously LONDON)
By Frank Tang and Raissa Kasolowsky
NEW YORK/LONDON, June 23 (Reuters) - Gold tumbled nearly 3
percent in volatile trade on Monday, ending just above $880 an
ounce as a sudden rise in the dollar against the euro prompted
panic selling by funds in exchange for cash.
However, a resurgence in physical demand after gold dipped
below $880 an ounce put a floor in prices.
Gold <XAU=> was at $882.85/884.05 by New York's last quote
at 2:15 p.m. an ounce (1815 GMT), against $901.35/902.75 late
in New York on Friday. It touched a session low of $877.00.
Silver <XAG=> fell almost 5 percent to a session low of
$16.56 an ounce, then recovered and was last at $16.75/16.83
against its U.S. close of $17.36/17.43 on Friday.
"The most obvious driver of the day is that the euro has
collapsed," said JP Morgan analyst Michael Jansen.
The dollar rallied on expectations that the U.S. Federal
Reserve will leave rates unchanged at 2 percent at its meeting
this week. The euro fell on weak economic data from the euro
zone.
A stronger dollar typically weighs on gold, which is bought
as a hedge against weakness in the U.S. currency. A stronger
greenback also makes gold more expensive for holders of other
currencies.
Jonathan Jossen, an independent COMEX floor trader, said
panic selling by funds and position squaring ahead of the Fed
meeting pummeled gold futures.
"Gold wasn't able to hold the $900 mark, so there was some
technical selling," said Carlos Sanchez, precious metals
analyst at CPM Group in New York.
Sanchez also cited redemptions by institutional investors
and hedge funds that needed cash.
The gold contract for August delivery <GCQ8> on COMEX
division of New York Mercantile Exchange settled down $16.50,
or 1.8 percent, at $887.20 an ounce.
PHYSICAL BUYING, OIL GAINS HELP
However, traders said interest in gold from physical
buyers, who have been discouraged by high and volatile prices
in recent months, has supported the market.
"We ran into some good physical interest in the high
$870s," said Simon Weeks, director of precious metals at the
Bank of Nova Scotia. "That has stopped the rot."
Bullion also cut losses on stronger oil as Nigerian supply
disruptions and escalating tensions between Israel and Iran
outweighed Saudi Arabia's pledge to raise output and keep
markets well-supplied. []
U.S. crude futures <CLc1> ended up $1.38 at $136.74 a
barrel.
The U.S. Federal Open Market Committee (FOMC), which starts its two-day meeting on Tuesday, is widely expected to leave
rates at 2 percent while issuing a statement about the need to
watch for inflation. Any suggestion that a rate hike may be
coming this year could help the dollar and pressure gold.
Among other precious metals, spot platinum <XPT=> slipped
to $2,033.50/2,053.50 an ounce from $2,048.50/2,068.50 late in
New York on Friday.
Palladium <XPD=> was last at $464.00/472.00 an ounce from
its Friday's U.S. finish $469.50/477.50 an ounce.
(Editing by David Gregorio)
