Gold rises as risk aversion moderates

Spot gold prices rose closer to $940 an ounce on Tuesday as investor risk aversion moderated, after doubts about an economic recovery triggered sharp selling of cross-market assets the day before.

The euro held steady after falling against the dollar on Monday, while Asian stocks were up slightly and commodities broadly turned positive after sinking the previous day when growth concerns led investors to trim risk exposure and buy dollars.

Spot gold prices, which hit a two-month high above $970 in early August, fell to a 2-1/2-week low of $929.70 on Monday.

Traders said the price drop drew a wide range of buyers, helping to offset large-lot selling and push up the market.

"There was quite a large volume of selling, from the Middle East, but the market comfortably absorbed it," said Yuichi Ikemizu, Tokyo branch manager at Standard Bank Plc, noting that wide-ranging buying interest helped support the market.

Spot gold rose 0.6 percent to $938.60 an ounce as of 0237 GMT, compared with New York's notional close of $932.80 per ounce.

U.S. gold futures for December delivery rose 0.5 percent to $940.40 an ounce, compared with $935.80 on the COMEX division of the New York Mercantile Exchange.

Asian stocks were up 0.5 percent while Japan's Nikkei average inched up 0.4 percent. .T .MIAPJ0000PUS

U.S. stocks suffered their worst loss in seven weeks on Monday due to doubts about the economy's growth prospects. .N

The euro inched up 0.3 percent against the dollar on Tuesday, after hitting a two-week low against the dollar the previous day. A firmer dollar typically hurts gold, as it makes dollar-priced bullion more expensive for non-dollar holders and dampens interest in the precious metal as an alternative asset.

Traders have said the rally in stocks and broad commodities on expectations for global economic recovery had run ahead of reality and a correction was due.

"Looking at how stocks are right now, there isn't a sense the markets are bracing for a sharp downturn," Ikemizu said.

But if stock declines accelerate on growing doubts about recovery prospects, industrial metals such as platinum, silver and copper may face selling pressure and benefit gold, he said.

Physical demand was also expected to keep support firm for spot gold above $900, he said.

Investor interest in gold, however, remained slack, with holdings at the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, staying at 1,065.49 tons as of August 17, unchanged from the previous business day. link....