Gold rises 4 percent amid stocks decline

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold prices rose 4 percent on Monday as investors sought a safe haven from steep losses in world stock markets amid mounting fears a worsening financial crisis would lead to a global recession.

Gold jumped in spite of a rallying dollar, heavy drop in crude oil and widespread losses in all other commodities.

Losses on the equity markets spurred buying of alternative assets, such as bullion. The blue-chip heavy Dow Jones industrial average .DJI fell more than 700 points at one point, breaking below 10,000 for the first time since October 2004, while European stocks also plummeted.

"There is a flight to gold as a safe haven again today, which is supporting prices," said Dresdner Kleinwort consultant Peter Fertig.

Spot gold traded at $867.30/869.30 an ounce at 2:37 p.m. EDT, up 3.9 percent from $834.80 an ounce, its Friday nominal close.

U.S. gold futures for December delivery settled up $33.00, or 4.0 percent, to $866.20 an ounce on the COMEX division of the New York Mercantile Exchange.

"(Given) the safe haven element, more concern regarding the credit crisis, and seeing the equity market tumble, it is certainly not surprising to see new buying in the gold market today," said David Meger, metals analyst at Alaron Trading in Chicago.

In euro terms, the metal reached 645.33 euros an ounce, its strongest since late March, when it hit a record high of 651.54.

The precious metal also benefited from strong demand from smaller investors for investment coins and bars.

"We feel extremely positive on gold prices as investors rush to buy gold coins as protection against further market volatility," said Fairfax analyst John Meyer.

"Gold seems so much more tangible an investment than many other instruments and is not vulnerable to rising supply," he added. "(And) gold looks good in an inflationary environment."

Gold largely shrugged off dollar strength and weaker oil. The U.S. currency hit a 13-month high against the euro as fears over bank troubles in Europe mounted and investors shunned riskier assets.

U.S. crude oil futures ended $6.07 lower at $87.71 per barrel on expectations the growing financial crisis will further slow already faltering global fuel demand.

Gold usually moves in tandem with crude, as it is often bought as a hedge against oil-led inflation.

FIRM DEMAND