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COMEX gold tops $340/oz on war, oil, dlr prospects

NEW YORK, Dec 17 (Reuters) - COMEX gold advanced in a runaway bull market early Tuesday, hitting a 5-1/2 year high over $340 an ounce as a scary brew of war fears, high oil prices and a tumbling dollar sparked buying from all quarters.

On Wall Street stocks opened down and the greenback fell to a three-year low against the euro, enhancing gold's cachet as alternative money and bolstering the bullion buying power of European investors.

Gold for February delivery at 0933 EST was up $4.30 at $341.90, topping at $343 off a low of $337.30. Benchmark futures exceeded the peak from October 1999, when gold spiked after central banks agreed to limit gold sales and lending in order to stabilize a market then struggling at 20-year lows.

But with COMEX gold now at its priciest since June 1997, players see a new dawn for the precious metals, which for more than a decade, before the stock market went bust and terror attack on America, was seen as a relic of the old economy.

"It's a safe haven. Not everyone is playing the stocks because they are unfavorable. They're getting into a little bit of the metal, which is helpful," said a floor broker.

"Even some of the small investors are starting to catch on, it's been on the news now for a little while," he said.

Gold rose more than 1 percent from late Monday and is hurdling toward year end with a 23 percent gain for 2002 so far.

Spot gold hit $341.70, its highest since June 1997. It was quoted at $340.80/1.55, up from $336.00/75 at New York's close Monday. London dealers fixed the morning spot reference price at $341.

The market was marking up the risk of another Gulf War after U.S. Secretary of State Colin Powell said late Monday there were problems with Iraq's 12,000-page weapons declaration to the United Nations. The United States is due to release its final assessment of the dossier this week.

By stoking anxiety that Washington is intent on attacking Iraq soon, this raised investor concerns about the financial costs of a Middle East conflict and worry the country might become more vulnerable to another attack like Sept 11, 2001.

Washington's key ally Britain said diplomatic efforts were still being pursued on Iraq and denied reports it was asking defense firms to speed up production of military equipment in readiness for war.

Dealers attributed the timing of gold's year-end rally to technicals, specifically the break above the June highs near $330 an ounce late last week.

Most of the buying has been speculative, with funds on the COMEX not this overbought since 1996. So with liquidity sure to dry up before the Christmas and New Year holidays, there is a risk of book squaring at any time before Dec 31.

"It's going to be volatile," said a bullion dealer.

Also, traders worried that physical demand is drying up.

Gold imports into India, the world's largest consumer, were badly hit as prices soared. Traders in India said they would return to the market if prices fall to about $330 an ounce, or stabilize at current levels for a while.

COMEX March silver was up 0.8 cent at $4.715 an ounce, trading $4.70 to $4.765. Spot silver fetched $4.70/72, up from $4.69/71 late Monday. The fix was $4.725.

NYMEX January platinum was up $3.40 at $608.50 an ounce, hitting a contract high at $610. Spot platinum was at $608/613.

March palladium was down $2.50 at $237 an ounce, near Monday's contract low at $234. Spot palladium was at $233/241.