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Gold climbs 1 pct as dollar retreats

LONDON - Gold recovered in Europe on Wednesday as the dollar's retreat from six-month highs boosted the precious metal's appeal as an alternative investment and as oil ticked up.

Traders awaited U.S. oil inventory numbers due out later in the session and key economic data due later this week for clues as to the future direction of trade.

Gold rose to $820.20/821.20 an ounce at 0901 GMT from $814.50/815.50 an ounce late in New York on Tuesday, having earlier touched a session high of $825.80.

On Tuesday, it tumbled to $801.90 ounce, its lowest level since late December, largely on a surge in the dollar.

"We are more than a cent off (the dollar's) lows which of course would see the gold price higher," said Standard Bank analyst Walter de Wet.

"We have seen such a fast sell-off in gold that a bit of consolidation is highly likely, especially in light of data releases due in the rest of the week," he added.

Retail sales and industrial production data from the United States and European inflation data are all due this week, and are likely to affect the currency markets, a key driver of gold.

The precious metal tends to trade in the opposite direction to the dollar, as it is often bought as a hedge against weakness in the U.S. currency.

The dollar has retreated from six-month highs against a basket of currencies on Wednesday, easing downward pressure on gold and helping it bounce in line with oil.

Crude prices ticked up on Wednesday after slipping to three-month lows on fears over falling demand, boosting interest in commodities as an asset class and gold's appeal as a hedge against oil-led inflation.

Traders will be eyeing U.S. oil inventory data due out later for clues as to the next direction for trade.

Equities slip

Stock markets opened weaker in Europe after a lacklustre session in Asia and losses on Wall Street on Tuesday, increasing interest in gold as an alternative investment, analysts said.

"U.S. equities traded lower yesterday on renewed worries over the financial sector and stock markets in Asia followed on the way down," said Dresdner Kleinwort in a note. "This might be positive for gold."

Silver also ticked up, rising to $14.72/14.78 an ounce from $14.60/14.66 late in New York.

Holdings of the world's largest silver-backed exchange-traded fund, the iShares Silver Trust, dipped half a percent to 6,166.57 tonnes on Monday, the last day for which the trust has reported.

Platinum bounced back above $1,500 an ounce on Wednesday, having shed more than 15 percent in the two weeks to Tuesday's close on fears over weakening demand from the car industry.

Spot platinum rose to $1,503.00/1,513.00 an ounce from $1,469.50/1,489.50 late in New York, off Tuesday's eight-month low of $1,462 an ounce.

Spot palladium firmed in sympathy, climbing to $314.00/318.00 an ounce from $305.00/313.00 an ounce. On Tuesday, it touched a low of $298.00, its weakest level in almost two years.

The $300 an ounce level remains a key support for the metal, analysts said.

Reuters

ndian growth seen missing c.bank fiscal yr estimate

NEW DELHI - India's economy is expected to expand at a slower pace this fiscal year due to worsening global conditions, and inflation will likely ease from 13-year highs by early next year, a government report said on Wednesday.

Tight monetary policy triggered by high oil and commodity prices, and global market turmoil will combine to moderate growth, Prime Minister Manmohan Singh's Economic Advisory Council said in its economic outlook for the 2008/09 financial year.

Asia's third-largest economy is estimated to grow 7.7 percent in the year to the end of March, below a recent forecast from the central bank. India's economy has grown by an average of 8.8 percent over the past four years.

But the report added that to trim inflation to 8 to 9 percent by the end of the fiscal year, from around 12 percent presently, the central bank would have to maintain a tightening bias.

"The downside risk to our growth expectations in 2008/09 is primarily from a further deterioration in global conditions with its attendant impact on India -- be it in the sphere of oil prices or capital markets," the panel said in its report.

Adverse global economic conditions were also expected to widen the current account deficit and pressure the fiscal system through rising subsidy bills.

A majority of analysts expect growth in India to slow as policy makers struggle to fight rising prices by raising interest rates, tightening liquidity and cutting import duties.

The central bank in its monetary policy review last month cut the growth forecast to 8.0 percent from 8.0-8.5 percent previously, but its prediction is still above many private banks' outlook for the Indian economy.

Slowing growth

In its last report under the leadership of outgoing chief C. Rangarajan, a former central bank governor, the panel said coordinated policy action at home, cooling commodity prices and action by other central banks could help bring India's inflation rate down to 8.0-9.0 percent this fiscal year.

"Maintaining a tight monetary policy stance and active fiscal and other methods are necessary to bring down inflation rates," the panel said.

Federal bond yields inched up one basis point after the report as it undermined expectations the government would trim retail fuel prices to match a fall in global crude prices.

Analysts said the report supported the widely held view that India's scorching pace of growth would cool, but said inflation could be lower than the panel's fiscal year-end estimate.

"The downward revision in the panel's GDP growth outlook to 7.7 percent in FY09 is in line with our view that growth will moderate this year," said Sonal Varma, economist at Lehman Brothers in Mumbai.

"However, we expect the slowdown to spread from industrial to the services sector and therefore have a lower GDP forecast of 7.3 percent."

Inflation and deficit risks

The report said India had been slow to raise the retail price of petroleum products in the face of surging crude rates and there remained a "large backlog" of adjustment still to be made.

The Reserve Bank of India (RBI) has raised its benchmark lending rate INREPOECI by 50 basis points to 9.0 percent, its highest in seven years and the third increase in two months.

It also increased the proportion of funds banks must keep on deposit to 9.0 percent INCRRECI to tighten liquidity.

The panel said fiscal deficit targets for 2008/09 would be exceeded, while revenue deficits would persist. It added that serious fiscal risks were arising from growing off-budget liabilities estimated at 5 percent of GDP.

Hefty fuel subsidies, loan waivers for millions of poor farmers and proposed salary increases for government employees are constraining the country's finances.

"Despite appreciable fiscal consolidation, large and growing off-budget liabilities are however a matter of concern. With these included, the fiscal situation no longer looks stable and sustainable," the panel said.