Gold rises toward $1,130 after Fed statement

NEW YORK Tue Mar 16, 2010 4:23pm EDT

Gold bars are displayed to be photographed at bullion house in Mumbai December 3, 2009. REUTERS/Arko Datta

Gold bars are displayed to be photographed at bullion house in Mumbai December 3, 2009.

Credit: Reuters/Arko Datta

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NEW YORK (Reuters) - Gold rose toward $1,130 an ounce on Tuesday, extending its gain to 2 percent after the Federal Reserve renewed its pledge to keep interest rates near zero for an extended period, bolstering the metal's investment appeal.

Buyers poured into the metal as the dollar fell against the euro after the Fed kept rates unchanged and reiterated exceptionally low rates for a while.

The metal, used as a safe haven in times of uncertainties, has gained due to currency volatilities related to lingering sovereign debt worries in Greece and major economies such as the United Kingdom and the United States.

"It's not a case of a weak dollar and strong euro. It's the fact that currencies in general are not very attractive right now, and that will remain a major benefit going forward," said Bill O'Neill, managing director at LOGIC Advisors.

"Gold is assuming the role of currency of choice. Gold's ability to move independently in the wake of negative currency moves is a very positive sign."

Spot gold was at $1,126.20 an ounce at 3:06 p.m. EDT (1906 GMT), against $1,108.10 late in New York on Monday.

U.S. gold futures for April delivery on the COMEX division of the NYMEX settled up $17.10, or 1.6 percent, at $1,122.50 an ounce.

The Fed's nod to a firmer job market after the deepest recession in decades offered a hint that it may be moving closer to dropping its promise to hold borrowing costs at rock bottom levels. It also had upbeat words on some business spending.

Gold is sensitive to suggestions U.S. interest rates may rise, which could benefit the dollar and raise the opportunity cost of holding non-interest bearing assets such as bullion.

Interest rates near zero percent also diminish the appeal of the U.S. dollar against higher-yielding currencies. <USD/>

Gold usually moves in the opposite direction to the dollar, as the unit's strength curbs its appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Concern over the fiscal health of debt-laden Greece and some major economies has helped support safe-haven flows into gold this month. The metal continues to benefit from worries over the sovereign debt.

On Tuesday, Greece escaped the threat of an immediate downgrade by Standard & Poor's on Tuesday, sending the euro, U.S. stocks and other assets higher across the board.

(Additional reporting by Jan Harvey in London; Editing by Lisa Shumaker)

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