By Brian Blackstone and Maya Jackson Randall

WASHINGTON -- The Federal Reserve on Wednesday slashed interest rates to four-year lows, capping a dramatic policy turn in October as the U.S. confronts a severe financial crisis and almost-certain recession.

Fed officials even left the door open to additional rate cuts to below levels not seen in a half-century, putting rates on the once-unthinkable path towards zero.

The Federal Open Market Committee voted unanimously to lower the target federal funds rate at which banks lend to each other by 0.5 percentage point to 1%, its lowest since between June 2003 and June 2004. That outcome was universally expected by Wall Street economists in a Dow Jones Newswires survey.

The Fed also reduced the discount rate charged for direct loans to banks by 0.5 percentage point to 1.25%.

"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the FOMC said, while the financial crisis "is likely to exert additional restraint on spending." (Read the statement)

Though the fed funds rate was 1% as recently as 2004, few if any on Wall Street thought officials would revisit those levels again.

After all, the 2001 to 2003 easing campaign was seen by some, in hindsight, as an overreaction to the mild 2001 recession and overhyped deflation fears. Those cuts and the slow pace of tightening thereafter were criticized as the root cause of the ensuing U.S. housing bubble, the collapse of which is at the heart of the current economic storm.

But this time is different. Far from a mild downturn, the U.S. economy is poised to contract sharply. Economists expect third quarter gross domestic product figures, due for release Thursday, to show a 0.5% contraction, at an annual rate. The forecasting firm Macroeconomic Advisers expects an accelerated decline of 2.8% in the current quarter followed by another GDP dip in early 2009.

Meanwhile, the unemployment rate is expected to climb well above 7% in coming months from its current level of 6.1%. And inflation rates, though still quite elevated on an annual basis, should come down quickly in response to falling oil and gasoline prices.

"In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability," the Fed said.

As recently as the FOMC's last scheduled meeting, on Sept. 16, officials had warned that inflation remained a "significant" concern. But as the credit crunch claimed more victims and showed signs of spilling over to consumer and business spending, Fed officials on Oct. 8 -- in an unprecedented joint rate cut with other major central banks including the European Central Bank and Bank of England -- lowered official rates by 0.5 percentage points.

Those actions should promote growth over time, the Fed said, though "downside risks to growth remain."

Fed officials will monitor the economy and markets and "act as needed" to promote economic growth and price stability, the Fed said.

Also this month, the Fed announced a series of programs to help ailing short-term debt markets, particularly by easing corporations' access to loans they need to fund their daily operations. The market for those IOUs, or commercial paper, has suffered as money market funds -- the largest group of investors in the market -- remain spooked in wake of the collapse of Lehman Brothers. Some money funds had incurred significant losses from defaulted Lehman debt.

Under the Money Market Investment Funding Facility the Fed announced last week, the Fed will provide funding to help money market funds purchase certificates of deposits and commercial paper. And through its Commercial Paper Funding Facility, a complementary program that started Monday, companies such as American Express and General Electric can sell their three-month commercial paper to the Fed.

The Fed has also extended loans to banking organizations to purchase asset-backed commercial paper, started paying interest on banks' required and excess reserve balances and boosted the size of its Term Auction Facility auctions -- all in effort to encourage lending.

There are preliminary signs the Fed's backstop programs are working. A key lending rate, the London interbank offered rate, for instance, was lower Wednesday, extending a streak of consecutive daily declines over the past two weeks.

"The real story regarding the Federal Reserve is its various liquidity operations; the federal funds rate is second fiddle," said Miller Tabak bond strategist Tony Crescenzi in a research note before the FOMC decision.

Still, the fed funds rate remains a powerful tool given the new global nature of rate cuts. Until recently, the U.S. was largely alone in easing rates given that the root cause of the global downturn has been the bursting of the U.S. housing bubble.

And even if the Fed is entering the final phase of its 13-month fed funds easing cycle, other central banks may just be starting. China's central bank lowered rates Wednesday for the third time in two months, following an unexpected rate reduction on Monday by the Bank of Korea. Norway's central bank also lowered rates Wednesday.

The ECB and BOE are expected to cut interest rates further when those central banks meet next month.

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Oct. 24 (Bloomberg) -- Global stocks from Seoul to Stockholm tumbled to the lowest since August 2003 on concern the deepening economic slump will damage earnings. Oil dropped to a 16-month low and the yen reached the highest since 1995 against the dollar.

The Standard & Poor's 500 Index lost 3.5 percent, a smaller decline than European and Asian equities, even after futures on the U.S. measure fell so far that trading was curbed. The U.K.'s FTSE 100 Index sank 5 percent and the pound had the biggest drop versus the dollar since 1971 following a government report showing the economy shrank for the first time in sixteen years. South Korea's economy grew at the slowest pace in four years, driving the Kospi Index down 11 percent.

``There's a worldwide fear of a worldwide recession,'' said Michael Binger, Minneapolis-based fund manager at Thrivent Asset Management, which oversees about $70 billion. ``The concern has moved to being about which banks and companies will fail to which countries could fail, with Iceland and some of the smaller countries around the world being on life support.''

The MSCI World Index of developed markets declined 4.3 percent to 871.64. MSCI's emerging-markets benchmark fell 7.8 percent to 473.98, completing eight straight weeks of losses, the longest stretch since 1998. The MSCI index covering both regions slumped to the lowest since August 2003. Russia's Micex Stock Exchange halted trading until next week following today's 14 percent retreat.

$10 Trillion

More than $10 trillion has been erased from the market value of equities so far this month. That accounts for about one-third of the total value wiped off world equities this year. MSCI's measure tracking both developed and emerging markets is heading for the worst year on record, plunging 47 percent in 2008, amid $660 billion in global credit-related losses and the biggest financial crisis since the Great Depression.

The Chicago Board Options Exchange Volatility Index surged to 79.13, the highest in its 18-year history. The VIX measures the cost of using options as insurance against S&P 500 declines.

``We're getting very close to the emotional blow-off where everybody says, `I don't care; I want out,''' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York. ``Everybody seems to be saying `I want to be in cash or Treasuries.'''

More than 200 companies in the S&P 500 have reported quarterly results since the start of October, posting an average profit slump of 23 percent, according to Bloomberg data.

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ASHOK B SHARMA

Posted: Oct 20, 2008 at 2350 hrs IST

The host of problems in the global economy, like the subprime meltdown, the financial crisis downturn in the equity markets, along with commodity prices still remaining at high levels, are all forcing investors to rediscover the lustre in gold.

According to a recent report by team of analysts headed by Kevin Norrish from Barclays Capital, investing in gold will be seen as a way out of the global economic turmoil. A study made by Merrill Lynch & Co Inc under the team leader Francisco Blanch shows gold prices can shoot up to $ 1,500 an ounce in the near future. The $700-billion US bailout package for financial institutions and billions of dollars being infused into the system by governments and central banks across the world and the contemplated cut in interest rates would fuel inflation. Crude oil prices would reach $150 a barrel. However, other experts have predicted higher prices for crude oil.

"Despite prices of gold reaching all-time high levels, people do consider spreading their investments partly in gold, as it has always acted as a safe haven for panicked investors. The investment value has never eroded. Rather, gold has given better returns in the last few years. There are predictions that gold prices may soon touch Rs 15,000 per 10 gm," said the CMD of MMTC India, Sanjiv Batra. MMTC is India's largest trading company in the public sector, responsible for importing commodities like gold, silver and platinum. As fears of a likely global recession remain high and the fluctuations of forex rates continues, investors are lining up for investment in the yellow metal, which has been the place for investment through the centuries.

Global prices of gold still continue to remain high, after reaching a peak of over $863 an ounce last month. At LME, on Friday, prices eased slightly below $800 an ounce.

India, like many other countries, is currently facing the impact of a global economic crisis in terms of a meltdown in the equity market and high commodity prices. The price inflation rate measured on point-to-point movement in the wholesale price index still remains at 11.44%. Recently, the Indian rupee has begun depreciating against the dollar by more than 20%. With a view to save the economy from the impact of a global crisis, the Reserve Bank of India has taken some measures for infusing liquidity in the market, but fell short of calling for a cut in interest rates.

Commenting on the current situation, the investment research manager of the World Gold Council, Rozanna Wozniak said, "We are not surprised by the way gold has reacted. The gold price initially dipped slightly because it was acting as an insurance policy and coming to the aid of stricken investors or holders and being sold accordingly. With the cataclysmic downfall of financial institutions that was seemingly indestructible, investors around the world are on tenterhooks for the next piece of bad news. This follows evidence of widespread physical buying in the key gold markets around the world. Gold, as no one's liability, is looking like a good place to be right now."... ..

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Dire economic data knocked stocks sharply lower Wednesday, with the S&P 500 posting its worst single-day percentage decline since Black Monday 1987, as investors braced themselves for an ugly recession.

The session's drop rekindled debate on Wall Street about whether last week's lows will hold up. Increasingly, it seems the record 936-point gain registered by the Dow Jones Industrial Average Monday wasn't enough to put the market on sure footing.

"I don't just think we're going to test the lows. I think we're going to violate them and break lower in a big way," said Kent Engelke, managing director at the brokerage Capitol Securities Management, in Richmond, Va. Referring to the possible fallout in the broader economy from the credit crisis, he added: "We don't yet know what that is, because this situation is so unprecedented. Every road sign has been obliterated."

The Dow's losses accelerated as the closing bell approached, leaving the blue-chip measure down 733.08 points for the day, off 7.9%, at 8577.91, hurt by losses in twenty-nine of its 30 components. The only exception was Coca-Cola, which climbed 1.1% after posting a strong profit report. The Dow has retraced more than half of its point gain between Friday's low and Monday's close. The decline Wednesday was the worst on a percentage basis since Oct. 26, 1987.

Citigroup and American Express each fell about 13%. The Dow's energy and raw-materials names were also at the forefront of the selloff amid fears that a U.S. slowdown will hurt the global economy and, in turn, lead to lower demand for an array of commodities. Alcoa was off 12.8%. Chevron and Exxon Mobil each fell more than 12% as oil prices hit their low for 2008, settling below $75 a barrel. Other commodities suffered on worry about falling industrial demand. The Dow Jones-AIG Commodity Index fell 4.3%.

Markets were hit with a stampede of selling during the final hour. Traders said some fund managers are unloading stocks to raise money for redemptions from investors burned in the recent selloff.

"We continue to see a vortex of selling, led by a levered, scared hedge fund community stepping on each other trying to get in front of the other guy to liquidate, based upon the real investment losses that they've experienced, coupled with the threat of year-end redemptions," said Doug Kass, president of Seabreeze Partners.

The S&P 500 plunged 9% -- its worst percentage slide since the 20.47% plunge recorded on Black Monday -- to 907.84. Basic materials, energy, and consumer discretionary dropped sharply. The Nasdaq Composite Index declined 8.5% to 1628.33. The tech-rich benchmark has lost more than a quarter of its value over the past 14 days. The small-stock Russell 2000 was off 9.5% at 502.11, for the largest one-day drop in its history.

The Chicago Board Options Exchange Volatility Index, a popular fear gauge for the stock market, surged 26% to 69.25.

A cluster of disappointing economic reports set a downbeat tone for the market. Retail sales fell 1.2% last month, the worst slide in three years. A report on New York factory activity was bleak, and core wholesale prices surged, suggesting earnings could be pressured by still-high expenses and declining demand. The Federal Reserve's beige book of regional economic indicators showed the job market and business activity weakening throughout the U.S.

In a speech to the Economic Club of New York, Fed Chairman Ben Bernanke said recent efforts by the central bank and other government agencies represent "powerful steps" to resolve Wall Street's crisis. Mr. Bernanke said that policy makers have avoided the "critical errors" made by their counterparts during the Great Depression.

Peter Cardillo, chief market economist at Avalon Partners in New York, fretted at the comparison of the current crisis to the Depression. Many commentators have drawn such comparisons recently, but for the Fed chairman himself to do so struck Mr. Cardillo as worrisome.

Traders on the New York Stock Exchange's floor said that the market's losses seemed to feed on themselves late in the day. As hedge funds and other players racked up losses, their brokers issued margin calls. That sparked more selling to raise cash -- a pattern that has played out on other days lately when the market has suffered steep drops.

"Yesterday, that [type of selling] was starting to dissipate -- a small sign of hope," said Andrew Frankel, co-president of Stuart Frankel & Co., a New York floor brokerage. "But today we've seen a return."

There were lingering signs of upset in the credit markets. Libor rates continued to ease, but risk premiums on agency debt widened sharply. Treasurys moved higher, in a hint that many investors remain in a defensive mood amid the bleak backdrop. Three-month Treasury yields hovered near 0.2%, down from more than 0.3% late Tuesday.

Underlining the general sense of malaise, gold prices rose. Gold futures were up $8.20 at $847.70 per ounce in New York.

The dollar was mixed against major rivals. One euro cost $1.3495, down from $1.3654. A dollar bought 100.12 Japanese yen, down from 102.04 yen.

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Commentary: There are plenty more shoes to drop

Gold fever is spreading around the world.

Mints are cranking out as many gold coins as they can to meet international demand by investors jittery over the global financial crisis.

The gleaming financial security blankets sport likenesses of Canadian maple leaves, pandas, musical instruments, eagles, buffalo, kangaroos and more, all denoting their country of origin.

 

 

"Right now, our stocks (of bullion) are down to zero," says Brian Kotila, manger of the Old 'N' Gold store on Fort Street. Bullion refers to precious metals in the form of coins or bars.

The store typically hears from about six people per month wanting to buy bullion or sell it. Now, four or five calls are coming in daily and they are "all wanting to buy," Kotila said yesterday.

Last week, two buyers each purchased a 10-ounce gold wafer, said Bob McDonald, who owns Old 'N' Gold and Barclay's Exchange Inc. on Douglas Street. Gold prices vary daily depending on the markets but each wafer would have been close to $10,000 in value.

"We are getting more calls from buyers than we can presently supply," said McDonald, who also buys gold jewelry to sell in the store and for melting.

Canadian Maple Leaf one ounce gold coins are currently worth about $900, depending on the market, he said.

London gold futures for December delivery closed yesterday at $839.50 US, down $3, below March's record high of $1,033.90 US an ounce. As for its future value, Peter Munk, chairman of Barrick Gold Corp., owner of the world's largest gold reserves, predicts that bullion prices will continue rising, pushed by large-scale purchases by "major, major" holders of dollars worried about the U.S. government's bailout plan impact on currency.

Gold buyers would include central banks and sovereign wealth funds wanting to diversify investments and hedge against a weaker U.S. dollar, he said.

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By Moming Zhou
Last update: 8:26 a.m. EDT Oct. 14, 2008

 

 

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0BBloomberg Television Headlines

1BOctober 9, 2008

2B“A Decade Wiped Out in the Last 4 Trading Sessions.”  Dow at 8579; Down 678 Points

At levels we haven’t seen since 2003

Plunged 21% so far this month

Down over 5,000 points from All-time High

NYSE CEO Duncan Niederauer says,

“Virtually every stock was down today.”

Tue Oct 7, 2008 10:14am EDT 
By Frank Tang

 NEW YORK, Oct 7 (Reuters) - Unprecedented demand for
precious metals and volatile markets forced the U.S. Mint to
cease production for the half-ounce and quarter-ounce popular
American Eagle gold coins for the rest of this year and to
supply other bullion coins on an allocation basis.

 "Due to the extreme fluctuating market conditions for 2008,
as well as current market conditions, gold and silver demand is
unprecedented and the demand for platinum is unusually high,"
the U.S. Mint said Monday in a memorandum to its authorized
coin dealers.

 "The U.S. Mint has worked diligently to attempt to meet
demand, however, blank supplies are very limited and it is
necessary for the U.S. Mint to focus remaining bullion
production primarily on American Eagle Gold one-ounce and
Silver one-ounce coins," the Mint said.

 The Mint said it would continue to supply one-ounce
American Eagle gold coins and one-ounce American Eagle silver
coins on an allocation basis to coin dealers.

 For half-ounce and quarter-ounce American Eagles, the Mint
said that inventory was depleted last week and no more coins
would be produced for the rest of 2008.

 In addition, the Mint said it would produce 1-10th ounce
Eagles based on current coin blank supplies, but would cease
production for the rest of this year once the remaining
inventory was depleted.

 Produced from gold mined in the United States, the 22-karat
American Eagles have been novel items among collectors and
investors since their introduction in 1986. Each coin has a
face value of $50 but it is sold by authorized dealers at a
premium to the price of gold.

 AMERICAN BUFFALO, AMERICAN EAGLE PLATINUM

 The Mint said it would continue to supply 24-karat American
Buffalo one-ounce gold coins based on current blank supplies,
but would halt production once the remaining inventory was
out.

 The Mint had suspended sales of the Buffalos in late
September due to strong demand and inventory depletion.

 Similarly, the Mint said that all denominations for
American Eagle platinum bullion coins were depleted last week,
and it would halt production for the rest of the year once the
remaining inventory was depleted.

 Coin dealers from the United States to Canada have recently
reported a surge in buying of bullion coins.

 Gold has soared as much as $200 in the last 30 days as
panic investors flocked to gold as a worsening global financial
crisis prompted people to seek a safe haven.

 Spot gold <XAU=> traded at about $884 an ounce on Tuesday,
while the gold contract for December delivery GCZ8 on the
COMEX division of the New York Stock Exchange was at $886 an
ounce.

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By Feiwen Rong

Oct. 7 (Bloomberg) -- Gold climbed for a second day on increased demand for a haven as the credit crisis deepened in Europe and equities and commodities tumbled worldwide.

Global shares plunged yesterday, erasing more than $2 trillion in market value, and crude oil dropped below $90 a barrel for the first time since February. Gold gained 2.9 percent after tumbling 4.9 percent last week as the U.S. passed a $700 billion package to bail out banks.

Gold ``benefited from safe haven flow'' amid ``increasing pessimism over the international economic outlook'', David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said in a report today.

Bullion for immediate delivery advanced 0.8 percent to $866.17 an ounce at 9:13 a.m. in Singapore. Silver for immediate delivery gained 1.1 percent to $11.1650 an ounce.

Asian stocks slumped for the fourth day on concern the seizure in credit markets will deepen a global recession.

Equities in the U.K. fell the most since 1987 yesterday, while the Dow Jones Industrial Average plunged below 10,000 for the first time in four years. Bank of America Corp. and Citigroup Inc. sank more than 5 percent after the German government led a bailout of Hypo Real Estate Holding AG and BNP Paribas SA bought parts of Belgium's Fortis.

A measure of six metals traded on the London Metal Exchange slumped 5.8 percent, the steepest decline since Aug. 16, 2007. Zinc fell 2.9 percent, copper 7.5 percent and nickel 5.6 percent.

December-delivery gold was little changed today at $866.70 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for August delivery advanced 2 percent to 2,799 yen a gram ($856 an ounce) on the Tokyo Commodity Exchange at 9:46 a.m. local time.

Dow Drops Under 10000 as Bank Woes Persist

OCTOBER 6, 2008, 4:57 P.M. ET

Deepening fear that the global economy is ailing beyond the capacity of policy makers to cure it sent stocks into a downward spiral Monday.

Many traders believe the bloodletting could continue in the days ahead even though major market averages have now touched multi-year lows, punishing freewheeling Wall Street bettors and conservative buy-and-hold investors alike.

The Dow Jones Industrial Average, which was off 800 points at its intraday low, ended down 369.88 points, or 3.6%, at 9955.50, hurt by declines in all 30 of its blue-chip components. The Dow finished below 10000 for the first time since late October 2004, and it has slid 12.8% since the meltdown of Lehman Brothers Holdings threw Wall Street into crisis in mid-September.

Markets were rattled overnight after German regulators moved to guarantee all the country's bank deposits and to rescue Hypo Real Estate Holding, the latest in a series of bailouts in Europe. Government officials and corporate executives in seven other European nations also met to save various financial institutions around the region. The moves kept concern about further bank failures around the world high and sent European stock markets sliding, setting a bleak tone for trading before the opening bell in New York on Monday.

The news in Europe came on the heels of last week's contentious passage of a $700 billion rescue package in the U.S. for ailing banks. And on Monday, the Federal Reserve said it would begin paying interest on commercial banks' reserves and expand its loan program for squeezed financial institutions.

But the notion that there will be no quick fix for the problems besetting Wall Street -- and the global economy – took firmer hold among market participants of all stripes on Monday.

"We're seeing pure fear right now," said Don Bright, of the Chicago proprietary firm Bright Trading. "My guys who usually trade 5,000 shares at a time are now trading 1,000 or 2,000. They're a lot more skittish."

That attitude seemed to be widespread Monday and could mean there are more losses to come, said Doreen Mogavero, president and chief executive of the New York floor brokerage Mogavero Lee & Co. She said that Monday's decline, although bloody, didn't seem like a round of capitulation, or last-ditch selling to mark a market bottom.

"Yes, it's a big move, but there hasn't been the sort of volume behind it that we'd like to see," in order to confirm that there isn't another wave of sellers still waiting on the sidelines, Ms. Mogavero said.

She added: "People are looking at the [stock] market's fundamentals and realizing how long it's going to take to see some real relief."

 

What's Driving the Dow's Fall

4:09

The Dow Jones Industrial Average falls below 10000 as financial turmoil in Europe heightens. WSJ's David Gaffen parses the reasons behind the drop and how soon we can see the effects of the recently passed bailout bill. Kelsey Hubbard reports. (Oct. 6)

Other stock measures were hit hard. The technology-oriented Nasdaq Composite Index dropped 4.3% to end at a four-year low 1862.96. The small-stock Russell 2000 fell 3.8% to 595.91, a three-year low.

The S&P 500 slid 3.9% to 1056.89, the lowest close in nearly five years. All its sectors fell Friday, led by by technology, which tends to suffer when investors' risk appetite ebbs. The sector fell 5.5%.

With stocks plunging, indicators of investor anxiety flashed. The Chicago Board Options Exchange's Volatility Index, a key measure of investor fear, leapt 15.3% to 52.05.

Credit markets also continued to show signs of stress. The cost of borrowing overnight U.S. dollar funds in the interbank market had risen to 2.36875%, up from Friday's fixing of 1.99625%. Yields also fell sharply as investors again flocked to U.S. government debt. The yield on the three-month Treasury bill fell below 0.5%, showing that investors are willing to accept almost no returns in exchange for the certainty that they'll get their cash back in hand after marking a short-term loan to the government.

The benchmark 10-year note gained a full point to yield 3.477% as investors rushed to move money into Treasurys and away from riskier assets like shares.

Oil futures tumbled $6.07, or 6%, to $87.81 a barrel, hurt in part by traders' concerns that fuel demand will suffer as the global economy slows in the months ahead.

Commodity traders rushed in an attempt not to get steamrolled as their market moved in tandem with the major stock-market indexes – an increasingly familiar drill. As the stock market falls, hedge funds and other deep-pocketed speculators tend to get margin calls from their stock brokers, which in turn prompts selling of commodities to raise capital.

Anticipating how investors are using trend-following computer programs to bet on a drop in demand for energy is "crucial" when the crude oil markets are affected by the momentum of the broader stock market, he said. "For a while it was the dollar. Right now it's the S&P," he said.

Other raw materials suffered from fears of weakening demand. The Dow Jones-AIG Commodity Index ended down 5.1%.

Gold, which is traditionally viewed as an investor haven rather than an industrial resource, was a notable exception to the commodity selloff. Futures on the yellow metal leapt $33.80, or 4.1%, to $862.70 per ounce in New York.

"The stock market is down so much, it is sucking up capital out of everything, except for gold," said Mark Waggoner, president of Excel Futures Inc., a brokerage in Newport Beach, CA.

He said he got numerous calls from clients and didn't even have time for lunch. "I am getting to the point where I didn't want to take any phone calls," he said.

In economic news, the Conference Board said its employment trends index, an aggregate of eight labor-market indicators, fell 0.8% to 108.4 in September, down from a revised 109.3 in August. The index is down almost 10% from a year ago, suggesting that the U.S. labor market is likely to deteriorate sharply in the months ahead.

"The deterioration in the Employment Trends Index has become very pronounced, suggesting that the unemployment rate may very well exceed 7% as early as the second quarter of 2009," said Gad Levanon, senior economist at the Conference Board. "The persistent slackening in labor market conditions, worsened by the financial crisis, has reached a level that in the past led to significantly slower wage growth across most industries."

Charles Evans, president of the Fed's Chicago branch, said in a speech at an event sponsored by the Association for Technology in Lost Pines, Texas, that U.S. economic growth is "likely to be quite sluggish" into 2009, with the timeline for any recovery quite uncertain.

The dollar was mixed against major rivals. One euro recently cost $1.3506, down from $1.3806 late Friday. A dollar fetched 101.58 yen, down from 105.14 yen.

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Gold Gains in London as Weaker Dollar Spurs Demand for Safety 

By Marianne Stigset

Oct. 1 (Bloomberg) -- Gold rose in London as a weakening dollar and speculation of a deepening global financial crisis increased the metal's allure as an alternative asset. 

The dollar fell from close to a two-week high against the euro on speculation the U.S. economy will enter a recession regardless of whether Congress approves the Bush administration's $700 billion bank-bailout proposals. Gold has a correlation of 0.67 to the euro-dollar exchange rate this year, up from 0.58 last year, Bloomberg data show. A figure of 1 would mean the two move in lockstep. 

``You wouldn't want to give up gold if you had it,'' said Mario Innecco, a futures broker at MF Global Ltd. in London. ``Things are not well.'' 

Gold for immediate delivery climbed $5.55, or almost 0.6 percent, to $876.50 an ounce as of 12:28 p.m. in London. Futures for December gained 80 cents, or 0.1 percent, to $881.60 in electronic trading on the Comex division of the New York Mercantile Exchange. 

``Gold is an indication of how things are going and central banks are trying to put some ice on the thermometer,'' keeping gold prices down, Innecco said. ``Eventually it will burst out and go up to $1,000 an ounce quite easily.'' 

Gold fell to $876 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $884.5 at the previous afternoon fixing. 

Senate leaders vowed yesterday to revive a bill to buy distressed assets from banks. The legislation was rejected two days ago by the House of Representatives. 

Global financial institutions have posted $590 billion of losses and writedowns since the start of last year following the collapse of the U.S. subprime-mortgage market. The losses led to a credit squeeze that caused banks including Lehman Brothers Holdings Inc. and Washington Mutual Inc. to fail last month. 

Not Enough 

Gold refineries can't make enough bars to keep up with demand from investors, the Financial Times reported today, citing Jeremy Charles, chairman of the London Bullion Market Association. 

The situation is unprecedented in Charles's 33-year career, the newspaper reported him as saying. Some investors are paying $25 an ounce above the spot price to get bars, the FT cited an unidentified banker at an LBMA meeting in Japan as saying. 

``To buy gold now you would have to pay a lot more than the price you see on your screen,'' Innecco said. ``More and more people are buying gold coins and bars.'' 

Interbank Rates 

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, advanced almost 3.1 tons to a record 755.3 tons yesterday, according to figures on the company's Web site. That would rank the fund eighth worldwide when compared with central bank holdings, according to data from the World Gold Council. 

``With interbank rates continuing to rise to new record levels, systemic risk remains elevated which will support gold,'' brokerage Gold and Silver Investments Ltd. in Dublin said in a report today. 

Banks are being squeezed because of a surge in borrowing costs as lenders hoard cash on concern more financial institutions will fail. The euro interbank offered rate, or Euribor, for one-month loans rose to a record 5.09 percent today. The London interbank offered rate, or Libor, for overnight dollar loans climbed to an all-time high of 6.88 percent yesterday. 

Platinum for immediate delivery gained $17, or 1.7 percent, to $1,028 an ounce in London, rebounding from yesterday's 2 1/2- year low. 

``Platinum was hammered yesterday,'' Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, said in a report. ``With bargain hunters roaming, technical signals should dominate today and we expect some gains.'' 

Among other metals for immediate delivery, silver rose 30 cents, or 2.5 percent, to $12.33 an ounce and palladium climbed $5.5, or 2.8 percent, to $205 an ounce. 

Platinum rose to $1,040 an ounce in the morning fixing in London from $1,004 at the previous afternoon fixing. Palladium gained to $207 an ounce, from $199. 

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