* Gold breaches $980/oz in race towards $1,000
* Dollar continues to climb, hurting most commodity prices
(Recasts and updates with U.S. markets activity; changes dateline to NEW YORK, previous LONDON)
By Barani Krishnan
NEW YORK, Feb 18 (Reuters) - Gold edged closer to $1,000 an ounce on Wednesday, appealing to more people as a store of value, while other commodities from oil to grains were pressured by a weak economy and strong dollar.
"We believe this is purely a flight to safety, with people desperate to put their money somewhere they can get liquidity and get their money back," said Daniel Smith, analyst at London's Standard Chartered, referring to gold.
The Reuters-Jefferies CRB index .CRB, a broad commodities gauge, was down 1.4 percent as markets outside of gold like oil, soybeans and cocoa extended Tuesday's sell-off. Copper, the main industrial metal, rose 1 percent in U.S. trade but aluminium slumped to six-year lows in London. [MET/L]
The broad weakness in commodities was due partly to the resilience of the dollar, which made raw materials priced in the greenback costlier to hold.
The dollar neared a three-month peak against the euro on worries about the exposure of eurozone banks to the struggling East European economies and hit six-week highs against the yen on concerns about the ailing Japanese economy. [USD/]
Analysts said Ben Bernanke, chairman of the U.S. Federal Reserve, also underlined investors concerns about the economy by saying the United States was unlikely to see a turnaround this year, although the economy should perform beyond the Fed's normal three-year forecast horizon. [ID:nN18497644]
Although inflation appeared tame, the potential for currency devaluation was overwhelming, given the staggering volumes of money being printed now to fight the recession, analysts said.
"Seeing gold rally in parallel with a strengthening greenback is not only unusual, but speaks volumes about how unnerved the markets are by the inflationary potential of the massive amounts of liquidity currently being generated," said Edward Meir, analyst at New York's MF Global.
Benchmark U.S. gold for April delivery GCJ9 breached the $980 an ounce level to hit seven-month highs for a second straight session, nearing the record high of $1,034.30 set for a third month contract in gold futures. April gold settled at $978.30, up $10.80 or 1.1 percent from Tuesday. [GOL/]
Trade in physical gold bullion reached a session high of $984.65, against the $968.40 level in New York late Tuesday.
U.S. crude CLc1 closed down 31 cents, or nearly 1 percent, at $34.62 a barrel as investors feared a big build in oil inventories in data due later on Wednesday and Thursday.
Crude oil prices had hit record highs above $147 a barrel in July, before the global economic downturn and concerns about energy demand brought the market down to as low as $32 in December and January. [O/R]
On the agricultural front, U.S. soybeans for March delivery SH9 settled down 15-1/2 cents at $8.87-1/2 per bushel, weighed down by economic concerns and improving crop conditions in major producing nation Argentina. [GRA/] (Reporting by Barani Krishnan; Editing by Marguerita Choy)