Gold rebounds 2.6 pct after early slump on Swiss vote

By Jan Harvey

LONDON (Reuters) - Gold rebounded sharply on Monday from the 2 percent losses it posted earlier after Switzerland voted against a proposal to boost its gold reserves, driven by a weaker dollar and softening appetite for assets seen as higher risk, like stocks.

Swiss voters on Sunday rejected a proposal to lift central bank gold holdings to 20 percent of its forex reserves. Gold slid as low as $1,142.91 before bouncing back to a peak of $1,197.10 as traders judged the move was overdone.

Spot gold was up 2.4 percent at $1,194.98 at 1440 GMT, while U.S. gold futures for December delivery were up $18.20 at $1,193.70 an ounce.

"Selling appetite was there, but as it turned out, they were not prepared to hang onto the conviction for that long," Saxo Bank's head of commodity research Ole Hansen said. "Buyers were lurking below $1,150."

"A close back above $1,180 today will be viewed as positive and most likely trigger some additional short covering. Overall the dollar remain a key driver and after some early strength, not least against the Japanese yen, it has since given back some the gains, thereby giving metals some support."

Risk appetite was slack on wider markets, hurt by slowing factory activity in China and Europe, with Wall Street opening weaker, European stocks falling 0.4 percent and oil prices hitting five-year lows. The dollar index slid 0.5 percent.

News that Moody's had cut Japan's sovereign rating earlier sent the yen to a seven-year low against the dollar and stimulated some gold demand, traders said.[FRX/]

"The Japanese rate cut caught a raw nerve," Simon Weeks, head of precious metals at Bank of Nova Scotia, said.

Gold received support from the physical markets, meanwhile, where India, the second-biggest gold consumer, eased curbs on imports on Friday. In top consumer China premiums were steady at about $1-2, reflecting strong buying interest.

Silver was up 4.2 percent at $16.05 an ounce, having earlier rallied as much as 6 percent to a peak of $16.34.

Platinum gained 1.8 percent to $1,217.50 an ounce, while palladium was up 0.1 percent to $807 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy and David Goodman)