PRECIOUS-Gold steadies off lows as equity weakness supports

                                
 * European stocks wilt, Nikkei hits 26-year low
                                
 * SPDR gold ETF records first outflow since early January
(Updates throughout, previous TOKYO)
                                
 By Jan Harvey
                                
 LONDON, March 9 (Reuters) - Gold steadied in Europe on
Monday, recovering some of its earlier losses, with weakness in
equities providing some support as the metal consolidated after
the last session's gains.
                                
 Traders shrugged off an outflow of metal from
exchange-traded funds last week, which saw the world's largest
gold-backed ETF record its first decline since January 8.
                                
 Spot gold <XAU=> was little changed at $938.10/939.10 an
ounce at 0952 GMT from $939.60 late in New York on Friday.
Earlier it dropped as low as $931.70 as the dollar firmed versus
the euro.
                                
 "Gold recovered pretty well last week but ran out of steam
between $940 and $950," said Simon Weeks, head of precious
metals at the Bank of Nova Scotia. "There is still a
consolidation process going on."
                                
 He said interest in gold was largely being dictated by moves
in the wider financial markets.
                                
 The SPDR Gold Trust, the world's largest gold-backed ETF,
recorded its first outflow since January 8 on Friday. Its
holdings dipped 0.3 tonnes or 9,454 ounces that session.
[ID:nT252679]
                                
 UBS analyst John Reade said the total gold holdings of the
nine major ETFs the bank follows fell to 48.30 million ounces on
March 6 from a revised total of 48.40 million ounces previously.
                                
 Demand for the precious metal from ETFs, which issue
securities backed by physical stocks of gold, was a major price
driver earlier in the year. However, traders say they expect
these inflows to resume.
                                
 "I think that there will be enough worrying news in the
first half of 2009 for ETF demand to remain solid," said David
Thurtell, an analyst at Citigroup.
                                
 European stocks fell in early trade on Monday, with the
STOXX 600 index <.STOXX> hitting its lowest level since
September 1996, as banks slipped after the UK government lifted
its stake in Lloyds Banking Group <LLOY.L>. [ID:nL9205396]
                                
 Stock markets had earlier slipped in Asia, with Japan's
Nikkei average striking a 26-year low, on worries over the fate
of automaker General Motors and U.S. banks.
                                
 Equity weakness broadly supported gold towards the end of
last week, although the precious metal was caught up in a stocks
sell-off last Monday as investors sought liquidity.
                                
 
                                
 DEFICIT
                                
 Among the other external drivers of gold, the dollar firmed
in early trade against the euro as weak equity markets weighed
on the single currency. Meanwhile the yen fell as Japan posted
its first current account deficit for 13 years. [ID:nL9203872]
                                
 Volatility in the foreign exchange markets has made gold
increasingly attractive to investors as an alternative to paper
currencies.
                                
 "While the financial environment remains poor and a number
of currencies struggle under the weight of bloated balance
sheets, gold is expected to remain an important element in
portfolio management at the personal, professional and central
bank level," said Standard Bank in a monthly note.
                                
 Oil prices meanwhile ticked up to top $46 a barrel, as
investors expected OPEC will cut output at its production
meeting this month. [ID:nSP209420]
                                
 Demand for gold from jewellery buyers in traditionally
strong markets such as India and China remained weak, however.
Scrap sales are also putting pressure on premiums for gold bars,
dealers said. [ID:nSP493799]
                                
 "The physical side is still in selling mode," said one Hong
Kong-based dealer.
                                
 Among other precious metals, spot silver <XAG=> slipped to
$13.27/13.33 an ounce from $13.32.
                                
 Spot platinum <XPT=> was little changed at $1,062/1,072 an
ounce from $1,066, while spot palladium <XPD=> slipped to
$198.50/203.50 an ounce from $201.
                                
 (Reporting by Jan Harvey; Editing by Keiron Henderson)