* Gold climbs to new 3-1/2-month high at $1,178.30/oz
* Dollar index hits lowest in nearly a month
* GRAPHIC-Asset returns: http://link.reuters.com/dub25t
(Updates prices, adds comment)
By Jan Harvey
LONDON, Oct 14 (Reuters) - Gold rose to 3-1/2 month highs on
Wednesday as soft U.S. data and concerns over deflationary
pressures in China fuelled expectations the Federal Reserve will
hold off raising interest rates, pressuring stocks and the
dollar.
The dollar fell to fresh 3-1/2 week lows versus a currency
basket after weaker-than-expected readings of domestic retail
sales and producer prices further cut expectations the Fed would
raise rates later this year. FRX/
Subdued inflation data from China earlier underpinned a
growing view that the world's second largest economy was losing
momentum, which could also defer Fed action. ID:nL3N12C2M6
Spot gold XAU= peaked at $1,178.30 an ounce, its highest
since June 30, and was at $1,173.06 an ounce at 1400 GMT, up 0.4
percent. U.S. gold futures GCv1 for December delivery were up
$7.70 an ounce at $1,173.10.
"The U.S. retail data have taken all the singing and dancing
away from the U.S. dollar, which is under heavy selling pressure
and hence we are experiencing another massive upward move for
the precious metal," Naeem Aslam, chief market analyst at Ava
Trade, said.
"The data represents the most naked form of consumer
confidence and it showed that the U.S. consumers are holding
back... This has pushed out the rate hike expectations which was
the biggest curse for the yellow metal."
Gold, which as a non-yielding asset tends to benefit from
ultra-low rates, has rallied more than 5 percent since a weak
U.S. jobs report on Oct. 2 fuelled speculation the Fed would
postpone its first rate hike in nearly a decade until 2016.
The Fed cited concerns about the global economy when
refraining from hiking rates at its September meeting, although
Fed Chair Janet Yellen said later the central bank was on track
to raise rates this year.
However, Fed Governor Daniel Tarullo said on Tuesday the Fed
should not hike interest rates this year, in comments that
point to sharp divisions within the U.S. central bank over
America's readiness for higher rates. ID:nL1N12D1MF
In Asia, home of the main physical gold markets, there was
some decent interest in gold overnight, MKS said in a note.
"Gold oscillated between $1,167-1,169 in the lead-up to the
Shanghai Gold Exchange open this morning, yet once they came in
some decent buying was seen -- mainly on Ecomex -- which was
sufficient to rocket gold through $1170 to $1174, tripping stop
buying through the August high of $1170," it said.
Among other precious metals, silver XAG= was up 1.1
percent at $16.08 an ounce, platinum XPT= was up 0.2 percent
at $989.25 an ounce, and palladium XPD= was up 2.2 percent at
$694.25 an ounce.