Gold steady near 11-week high on Mideast violence

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold steadied above $870 (599 pounds) on Tuesday, hovering within sight of a 11-week high hit the previous day, with sentiment underpinned by conflict in the Middle East, firm oil prices and a weaker U.S. dollar.

Gold rallied as much as 24 percent in 2008, striking a record high of $1,030.80 in March on fears of rising energy costs and as investors diversified into precious metals on the dollar's uncertain outlook.

"There's a reasonable chance we'll see some end-year profit taking in what has been the best performing commodity this year and certainly this quarter," said Mark Pervan, head of Australia & New Zealand Bank research.

"There's been concerns of high political risk in the market. But I think it might struggle to get through $900 unless there's a major flare up again tonight," he said, referring to the fighting between Israel and Hamas in Gaza.

Gold was trading at $877.70 an ounce, up $0.20 an ounce from New York's notional close on Monday, when it rallied to as high as $889.55 an ounce after oil jumped more than $2 on fears Israeli attacks on Hamas could disrupt oil supplies.

Buying from Japanese investors amid fears of a global recession helped gold stay at current levels, dealers said. Gold last traded above $900 in early October, before tumbling to its weakest in 13 months around $680 after sell-off in equities and fears of a deepening global economic downturn forced investors to cash in to cover losses.

It slowly regained its safe-haven appeal after stock markets stabilised, with a rebound to around $800 also igniting technical buying.

Israeli warplanes killed 10 Palestinians in attacks that targeted Hamas government buildings and other symbols of the Islamist group on the fourth day of the fiercest air offensive in Gaza in four decades.