GLOBAL MARKETS-Gold hits 6-year high on war fears,oil near peaks

Reuters, 01.06.03, 8:56 AM ET By Nigel Stephenson

LONDON, Jan 6 (Reuters) - Gold hit its highest level for almost six years on Monday, oil hovered near two-year peaks and the dollar slipped as the United States and Britain were reported readying troops for possible action in Iraq.

Stocks dipped in Europe in the first full trading week of the year after a profit warning from Dutch airline KLM <KLM.AS> and British insurer Britannic showed the earnings picture was cloudy at best, although Asian shares rallied.

Gold <XAU=>, seen as a safe haven in turbulent times, hit a high of $356.25 an ounce, pushing past the previous high of $353.75 touched last month, its highest since March 1997. It later pulled back to $354.65.

"Gold should remain firm for some time to come with the threat of war between the U.S. and Iraq and/or North Korea," said James Moore, metals analyst at TheBullionDesk.com.

The metal's price has soared in the past month as tension has mounted over possible war in Iraq, North Korea's nuclear brinkmanship and as the U.S. dollar has fallen. Bullion is 28 percent higher than this time last year.

The U.S. military has put at least 275 Army Reserve units, involving more than 10,000 soldiers, on alert to be ready to move overseas as soon as this week, the USA Today newspaper reported on Monday. Britain will begin deploying troops to the Gulf on January 15, the London Sunday Times reported.

Oil, which has surged in recent weeks on fears war in the Middle East could disrupt supplies and as a strike in Venezuela has strangled exports from that country, stayed within a dollar of two-year highs.

However, it pulled back from peaks after the OPEC cartel said it would hike output to cover lost supplies from Venezuela.

Brent crude for February delivery was last at $30.55 a barrel, down 22 cents after some profit-taking. It hit a 15-month high of $31.02 a week ago. U.S. crude was at $32.65 a barrel, down 43 cents and off a two-year high of $33.65 hit on December 30.

"Prices are off a little after a big rise during Christmas and the New Year," said Richard Savage of Bank of America. "With uncertainty over the Venezuelan strike and OPEC's response, I would expect volatile trade over the next few days."

DOLLAR SLIPS AGAIN The dollar, seen at risk from the economic fallout of any war with Iraq, fell again on Monday, hovering above recent lows. It was last at $1.0480 per euro <EUR=>, nearly half a cent above last week's three-year low beyond $1.05.

Against the safe-haven Swiss franc <CHF=> it was half a percent down at 1.3891 francs, above the four-year low of 1.3805 set last week.

"Dollar weakness is feeding off the Gulf situation," said Neal Kimberley, senior foreign exchange manager at Bank of Tokyo Mitsubishi. "The market is in weak dollar mode and wants to see how far it can go."

The greenback was half a percent down on Friday's levels at 118.65 yen <JPY=>, about a yen above a 3-1/2 month low set last week. Wariness about potential Japanese intervention to sell the yen increased after Finance Minister Masajuro Shiokawa said there was a global perception the currency was too strong.

European stocks were lower after a surge in Tokyo shares.

At 1345 GMT the FTSE Eurotop 300 index <.FTEU3> was down 0.78 percent while the narrower DJ Euro STOXX 50 index <.STOXX50E> was down 0.3 percent.

KLM shares fell after the airline said it was unlikely to achieve a full-year operating profit as worsening economic conditions and geopolitical instability hit traffic.

Shares in Britannic Group <BRT.L> lost half their value after the company issued a profit warning and scrapped its final dividend. "There will be more profit warnings as the difficult business environment unearths companies with flawed strategies and management," said John Hatherly, head of global analysis at M&G Asset Management.

Tokyo's Nikkei index <.N225> closed 1.57 percent higher as exporters such as Canon <7751.T> led to a broad-based advance. U.S. stock index futures were down slightly, indicating Wall Street was likely to open lower.

Safe-haven euro zone government bonds traded mixed. The yield on the two-year German Schatz <EU2YT=RR>, which moves in the opposite direction to the price, was down 3.8 basis points at 2.73 percent but off last week's 3-1/2 year low of 2.674 percent.

The 10-year German Bund <EU10YT=RR> was yielding 4.31 percent, down one basis point.