* ECB cuts key interest rate to 1.00 pct, statement eyed
* Stock markets rally, dollar weakens versus the euro
(Updates prices, adds ECB rates decision)
By Jan Harvey
LONDON, May 7 (Reuters) - Gold rose more than 1 percent on
Thursday, with buying supported by the prospect of gold being
used as a possible hedge against inflation if rallying stock
markets are pointing to a stabilisation of the global downturn.
Dealers also cited uncertainty ahead of U.S. bank stress
test results and positioning ahead of a press conference with
European Central Bank chief Jean-Claude Trichet.
The ECB earlier opted to slash borrowing costs to a record
low 1 percent as expected, but investors are now focusing on any
alternative policy measures the ECB reveals to get the ailing
euro zone economy on its feet.
The precious metal rallied to a five-week high of $922.30 an
ounce earlier in the session, with gains intensifying as a break
through the previous day's high triggered automatic buy orders.
Spot gold <XAU=> was bid at $918.90 an ounce at 1155 GMT,
against $909.90 an ounce late in New York on Wednesday.
The results of stress tests on 19 U.S. banks will be
released at 2100 GMT. Treasury Secretary Tim Geithner said in an
opinion piece for the New York Times that he expects banks to
pay back more than the $25 billion of government rescue funds he
had previously estimated. []
Standard Bank analyst Walter de Wet said expectations that
the financial crisis is bottoming out may also be turning
attention away from gold as a safe haven, but boosting its
appeal as an inflation hedge.
"People who are bullish on gold would probably see this as a
time to buy because, if indeed the recovery is close, we might
see inflationary pressures creeping in sooner rather than
later," he said.
"In the short term, people might also be hedging themselves
against what the ECB will do -- whether they will resort to
massive quantitative easing or not," he added.
Traders are awaiting comments from ECB president Jean-Claude
Trichet in a press conference after the bank's rates
announcement for news of any additional steps the bank is
expecting to take to get the euro zone economy back on its feet.
The ECB said on Thursday it had cut is key interest rate to
a record low 1 percent, as expected. The dollar slipped against
the euro after the decision. []
Gold's gains were limited, however, by a rally in European
shares after a strong session in Asia, with traders optimistic
over the outlook for U.S. banks. []
SLUGGISH
Investment demand for gold remained sluggish, with holdings
of the world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust <GLD>, declining 0.36 tonnes on Wednesday.
The trust has seen an outflow of 23.28 tonnes in the last
four weeks, compared with inflows of nearly 90 tonnes in the
preceding period.
The largest silver-backed ETF, the iShares Silver Trust
<SLV>, also said its holdings declined 61.28 tonnes on Wednesday
to 8,348.18 tonnes.
Silver prices rose to a new ten-week high of $14.10 an ounce
on Thursday, tracking gold higher. Spot silver <XAG=> was later
bid at $13.96 an ounce against $13.70.
Among other precious metals, spot platinum <XPT=> was bid at
$1,160.50 an ounce against $1,133.50, while spot palladium
<XPD=> was bid at $233.50 an ounce against $226.50.
The metals benefited from strong Japanese buying on the
first day of trade on TOCOM, the Tokyo commodities bourse,
analysts said, after the Golden Week holiday.
Expectations of better economic prospects, which bode well
for demand for industrial metals, are also supporting prices.
Platinum and palladium are mainly used as components in
catalytic converters, and prices have dropped sharply since the
downturn sparked a drop in demand for cars.
(Reporting by Jan Harvey; Editing by Sue Thomas)
