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UPDATE 4-Gold falls 3 pct as dollar firms

* Dollar firms vs the euro on flight to safety

* Oil pares gains, undermining gold’s inflation hedge appeal * Platinum, palladium slide on demand fears (Adds comment, updates prices)

LONDON, Oct 17 (Reuters) - Gold fell 3 percent on Friday, extending the previous session’s losses, as the dollar firmed against the euro, and investors sold bullion to cover losses on other markets.

Spot gold XAU= was quoted at $786.15/788.65 an ounce at 1304 GMT, down from $804.50 late in New York on Thursday, when it slipped 5 percent. Earlier it touched a low of $777.80.

Strength in the dollar against the euro is being supported by interest in the currency as a haven from risk, analysts say. This is weighing on gold, as it cuts the metal’s appeal as an alternative investment to the U.S. currency.

“This is a combination of the dollar being stronger, and disillusionment that gold hasn’t performed as well as might have been expected (given that) a lot of measures of market turmoil are still showing things to be as bad as ever,” said Matthew Turner, at commodity analysts VM Group.

Support from gold’s other main external driver, crude oil, is also waning. Prices ticked up more than $3 a barrel in early trade as a late rally among Wall Street stocks and expectations of an OPEC production cut cheered investors, but have since sharply pared gains. [ID:nN16417066]

Rising crude prices boost interest in gold as a hedge against oil-led inflation.

A rebound in equity markets after sharp losses in the previous session is also likely to cut some call for gold as a haven from risk. European shares jumped as investors picked up battered bank and firmer oil prices benefited energy shares. [ID:nLH220635]

The world’s largest gold-backed exchange traded fund, New York’s SPDR Gold Trust, said its bullion holdings slipped more than 1 percent on Thursday to 756.86.

CAR SALES HIT PGMs

Among other precious metals, silver tracked gold lower to $9.38/9.47 an ounce from $9.63 an ounce late in New York on Thursday. The precious metal slipped sharply that session, falling to a 2-1/2 year low of $9.21 an ounce.

The platinum group metals also tumbled on Thursday, with platinum and palladium both shedding more than 10 percent of their value to their day lows on fears over falling car sales.

The metals have extended losses on Friday. The platinum group metals are primarily used in catalytic converters, and are sensitive to problems in the automotive sector.

The car market has been hit hard by the economic downturn, with reports suggesting record low auto sales have sparked merger talks among the major carmakers. [ID:nLH274291]

“All commodities are under pressure and outlook for the car industry is really depressing,” said one European trader. “I think we could see $800 in platinum and $150 in palladium pretty soon.”

“It seems some funds are still liquidating and industry not really buying,” he added.

Spot platinum XPT= was quoted at $850/870 an ounce, down from $884.50 late in New York on Thursday. Palladium XPD= was at $168.50/176.50 an ounce, down from $171. (Reporting by Jan Harvey; editing by Peter Blackburn)

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