* Cisco climbs after results, outlook

  * Green Mountain Coffee tumble after sales miss

  * Indexes: Dow up 0.6 pct, S& P up 0.4 pct, Nasdaq off 0.1 (Updates to midmorning, adds quote, changes byline)

  By Angela Moon

  NEW YORK, Nov 10 (Reuters) - U.S. stocks steadied on Thursday as the European Central Bank's purchase of Italian bonds helped calm markets queasy over the euro zone debt crisis.

  An Italian debt auction also went better than expected and signs of new governments in Italy and Greece eased fears of a euro zone break-up, sending stocks up sharply early but gains quickly eased.

  The ECB aggressively bought short-term bonds, helping sentiment on Italy, which has replaced Greece as the biggest source of concern in Europe's two-year-old debt crisis. But worries persisted that Italy's borrowing costs were unsustainable.

  " We are seeing some easing of the Italian bond rates and some confidence in the new Greek leadership but this has been a seesaw battle from the start. We get a piece of good news today, and then we get something else tomorrow," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

  Europe " is definitely putting a cap on our rally here."

  The Dow Jones industrial average rose 66.98 points, or 0.57 percent, at 11,847.92. The Standard & Poor's 500 Index was up 4.74 points, or 0.39 percent, at 1,233.84. The Nasdaq Composite Index was down 2.13 points, or 0.08 percent, at 2,619.52.

  The S& P 500 saw its worst daily percentage drop since Aug. 18 on Wednesday.

  Economic data showed new U.S. jobless claims declined for the second straight week to the lowest level since April, while the trade deficit unexpectedly shrank in September to its narrowest level since December.]

  Cisco Systems Inc jumped 6 percent to $18.66 after the world's biggest networking equipment maker reported earnings that beat estimates and forecast revenue and profit above expectations.

  But pressuring the Nasdaq, Green Mountain Coffee Roasters Inc slid 37 percent to near $42.20 after quarterly revenues came in less than expected, raising fears about the company's growth potential.

  Apple shares were down 2.5 percent at $385.22.

  Italy paid its highest yield in 14 years to sell 12-month debt in an auction, and while there was relief the sale went smoothly, worries festered that Italy's borrowing costs were unsustainable.

  In Greece, former European Central Bank vice president Lucas Papademos was appointed to head the country's new crisis coalition.

(Corrects company name in paragraph 8 to Goldcore from Gold Corp)

  * Gold seen returning to record highs

  * Options show bias heavily in favour of a rise to $2,000

  * Fund managers see euro debt crisis as riskier than subprime

  By Amanda Cooper

  LONDON, Nov 10 (Reuters) - Gold has confounded market watchers by refusing to behave like a safe-haven and instead has tracked equities over the past few weeks, but the escalating European debt crisis could see bullion ditch its risk-asset mantle and return to record highs.

  The debt problems of some of the smaller euro zone states have mortally wounded the premierships of Greece's George Papandreou and of Italy's Silvio Berlusconi and hounded the euro to one-month lows against the dollar and eight-month lows against the pound as confidence evaporates over the ability of Europe's leaders to stem the spread of the crisis.

  Gold has risen 4 percent this month, having touched its highest in 7 weeks above $1,800 an ounce this week, still back from the $1,920.30 record reached early in September, but pointing towards $2,000 judging by current options positions.

  Unlike previous phases of market turmoil, such as the aftermath of the 2008 collapse of U.S. bank Lehman Brothers, when gold lost as much as 7 percent in a single day, or during this May's commodities " flash crash" that stripped 3 percent off the price in two days, investors and analysts say gold looks unlikely to be sucked into a vortex of mass selling.

  " Whenever you get total panic, even gold goes down, because people take profit on their gold positions. When people start losing money very rapidly, they close down all positions including the ones that are sitting on a profit," said Jesper Dannesboe, senior commodity strategist at Societe Generale.

  " That's why you had that gold sell-off in September, when everything was in panic mode. You don't have quite the same panic mode right now. It's (an environment of) moderately bad news and that tends to be bullish for gold," he said, although no-one is yet placing bets on what happens if the euro melts down.

 

  CASH FOR GOLD

  In periods of extreme risk aversion and volatility, gold can hitch itself to more growth-dependent assets and succumb to broad selloffs, especially if investor panic is such that the desire for the safety of cash is the driving force. In September, the gold price shed more than 20 percent in two weeks as investors scrambled to cover losses in other markets.

  Mark O'Byrne, director of bullion dealer and wealth manager Goldcore, said in an interview last week given the degree of macroeconomic risk, his company was considering increasing its allocation to gold within its passive funds to 10 percent from 5 percent currently. He added he would not be surprised to see gold trading above $1,900 because of this heightened risk.

  Pau Morilla-Giner, who runs the London & Capital commodities fund, which currently allocates about 37 percent of the 200 million pounds it has under management to gold, said the 14-percent rise in the gold price since September's lows had been fuelled by a much slower, steadier rise in investment than back in the summer, when so-called " hot money" came flowing into the market.

  " I don't necessarily subscribe to the theory that on specific days of doom, gold is going to go up. It will only go up if the expectation that the reaction to that doom is monetary expansion," he said.

  " The worse things are for Europe, the more pressure the European Central Bank will have to provide the ultimate stimulus and that inevitably will mean yet again debasement of the currency of choice in this case the euro."

  Gold has risen by nearly a third in value over the last year, driven by a rising tide of liquidity from the developed world's central banks including the U.S. Federal Reserve, the ECB, the Bank of England, the Bank of Japan and the Swiss National Bank, which have sought to anchor interest rates by lowering them, via purchases of government debt or by intervening in the currency markets.

  So the likelihood of any of the major central banks raising interest rates has dwindled considerably and price pressures remain high, meaning real interest rates, which factor in inflation, are negative throughout the G7, thereby offering hefty support to gold, which is not subject to interest.

  " On our analysis, since 1970 whenever U.S. real interest rates have fallen below -3 percent, gold prices have typically been able to rise by an average of 40 percent year-on-year," said analysts at Deutsche Bank in a recent report.

  " On this basis, if real rates remain at current depressed levels it would imply a move above $2,000/oz is only a matter of time."

  The options market shows the heaviest bets among investors is for gold to end the year at or above $2,000 an ounce. For gold derivative contracts expiring at the end of December, most open interest on call options - which give the holder the right, but not the obligation, to buy an asset at a predetermined price by a set date -centres on $2,000. < 0#GCG2+>

  Andrew Cole, a portfolio manager at Barings Asset Management, which runs a 4 billion pound dynamic asset-allocation fund that keeps 10 percent of that total in gold, said currency debasement underpinned the rationale behind the demand to own bullion as a safe store of value, even more so than during the subprime debt crisis of 2008 .

  " We're in a much darker place. Governments can't rush to the rescue in the way that they did in 2008. In 2008, there was a certain amount of optimism that we can pass what was ostensibly a private-sector debt problem onto governments, that they had big enough shoulders to carry the burden that would allow for an economic recovery," he said.

  " Three years on, we recognise that the economic recovery was so lacklustre that actually they now have the debt problem and there is nobody else. More debt and somebody riding to the rescue probably doesn't help. So an extended period of sub-trend growth and deleveraging looks inevitable." (Editing by Keiron Henderson)

By Natalia Drozdiak

  BERLIN, Nov 7 (Reuters) - An alternative currency introduced in a wealthy German region as a school project eight years ago has turned into a hot commodity thanks in part to the euro zone crisis with 600 businesses and 3,000 people trading 'Chiemgauers' instead of euros.

  The 'Chiemgauer' -- named after the southern Bavaria region around Rosenheim -- comes in paper notes with face values of 1 to 50. The notes are convertible at local shops and have a fixed exchange rate of 1:1 with the euro.

  A total of 6 million 'Chiemgauers' have exchanged hands this year in the most rural region near the Austrian border, a 33-percent increase from 2009, according to Christian Gelleri who created the parallel currency in 2003 as a project to promote regional businesses.

  That is up from 70,000 'Chiemgauers' that were exchanged by 130 people in the first year 2003 when only a handful of local businesses accepted the euro alternative.

  " The basic idea is to link money to the real economy and our aim was to keep money circulating locally," Gelleri, a high school economics teacher, said in a recent interview with ARD television.

  " We wanted to help people pay attention to small businesses, the average consumers and keep the money flowing locally. Our idea is that money should serve people and not the other way around," added the teacher who has become a minor celebrity on German TV talk shows this year.

  Gelleri's 'Chiemgauer' -- there are now 540,000 notes in circulation -- is just one of 24 alternative currencies that have been set up in German regions.

  They pose no threat to replace the euro -- Europe's single currency -- but the increasing popularity of the regional parallel currencies reflects fears among Germans about the stability of the currency that replaced their Deutsche mark in 2002.

  " The 'Chiemgauer' is a quaint idea but it can't work on a national level," said Wolfgang Gerke, a banking professor and president of the Bavarian Financial Centre think tank.

  Gerke has been campaigning for Greece to quit the euro zone and return to the drachma as a way of helping it -- and the euro zone as a whole -- recover from the sovereign debt crisis that has hit the country and the European Union hard.

  " The drachma would be, for instance, an official currency and the 'Chiemgauer', of course, isn't," Gerke added.

  While the 'Chiemgauer' might seem like a humorous idea to most, others have actually studied the success of the regional currency and said it could possibly serve as a model for Greece, whose sovereign debt crisis has sparked an EU-wide crisis.

  A German economics professor named Eckhard Behrens said if a currency like the 'Chiemgauer' were introduced it could perhaps help Greece. It could help stimulate the local economy, Behrens wrote in a contribution for a weekly newspaper Das Goetheanum.

  " Greece needs a regional currency (like the Chiemgauer) to propel the economy without creating more foreign debt -- more turnover with a regional currency would lead to more employment, less social spending and more tax revenues" , Behrens writes.

  The backers of the 'Chiemgauer', which has begun to attract national media attention as the euro zone debt crisis worsens, insist that there is no anti-euro or nationalist sentiment behind the idea.

  The currency was created as a 10th grade school project by Gelleri as a means to support the businesses of the Chiemgau region. It has negative interest rates and begins to lose value -- 2 percent every three months -- if not used again within three months.

  Gelleri said those negative interest rates keep the money moving rather than being kept idle by being stashed away in savings. Shops have to pay a small fee to use the 'Chiemgauer' and profits are donated to charity. (Reporting By Natalia Drozdiak, editing by Paul Casciato)

* PBOC fixes mid-point marginally weaker for 2nd day

  * Not sign that PBOC is engineering yuan depreciation

  * Stability will be catchword for rest of 2011

  * Yuan at 6.3470, up 3.82 pct so far this year

  By Lu Jianxin and Jacqueline Wong

  SHANGHAI, Nov 8 (Reuters) - The yuan rose slightly against the dollar on Tuesday but traded below the Chinese central bank's mid-point due to decent corporate dollar demand, traders said.

  The People's Bank of China set the mid-point, or its reference rate at which dollar/yuan can rise or fall 0.5 percent from that level in a day, slightly weaker for the second day.

  The central bank was letting the yuan stage a mild correction after the currency hit record highs last week, but it was not engineering a steep depreciation, traders said.

  The government appears to be wary of sharp yuan fluctuations amid the recent global economic and market turmoil caused mainly by the euro zone debt crisis, and will likely keep the currency stable for the rest of this year, traders said.

  For instance, it pegged the yuan to the dollar for two years until June 2010 during the 2008 global financial crisis.

  " Stability is always the catchword when China manages the yuan's exchange rate during global financial turmoils," said a dealer at a Chinese state-owned bank in Beijing.

  " For the rest of this year, the PBOC is likely to keep the yuan in a tight range mainly between 6.30 and 6.35."

  Spot yuan was trading at 6.3470 versus the dollar at midday, up slightly from 6.3510 at Monday's close.

  Before trading began, the PBOC set the mid-point at 6.3247, slightly weaker than Monday's 6.3212. The central bank uses the fixing to signal the government's intentions for the yuan.

  Spot yuan has now risen 3.82 percent so far this year and 7.55 percent since it was depegged from the dollar in June 2010, but it has lagged the PBOC's mid-point recently due in part to a wide spread between Shanghai and Hong Kong.

  The negative spread between spot yuan in Shanghai and Hong Kong remained at a decent level of 230 pips at midday, although that was down from 350 pips at Monday's close, meaning Chinese companies who need dollars can buy them more cheaply at home than in the offshore market.

  The spread hit a record high of 1,311 pips on Sept. 23 when a rally in the dollar in global markets sparked dollar short-covering in offshore markets, reaching a level wide enough for firms to also do some arbitrage against the onshore market.

 

  NEITHER FAST APPRECIATION NOR DEPRECIATION

  Some overseas investors appear to have also been shorting the yuan in recent weeks amid signs that China's economic growth is slowing under the double weight of a global slowdown and the country's monetary tightening policies in place since October last year to manage high inflation.

  The PBOC has recently kept its mid-point relatively high in an apparent move to curb offshore speculation about yuan depreciation, sending a clear signal that it does not want the yuan to depreciate at least for now even though it is still controlling the pace of appreciation, traders said.

  High PBOC fixings caused the yuan to hit a slew of limit-downs versus the dollar in the past two months.

  A shortfall of dollars on the Shanghai market was cited as a major reason -- companies were arbitraging against the Hong Kong market and the dollar rallied in September which led to Chinese banks and their clients being more willing to retain dollars.

  But a shortfall of dollars is unlikely in a country with $3.2 trillion in foreign exchange reserves, traders said. The PBOC holds the bulk of these reserves on behalf of the government as it has bought most dollars flowing into China to maintain a tight grip on the yuan's exchange rate for more than a decade.

  The central bank can easily inject dollar liquidity into the mainland market to offset any sort of dollar shortfall.

  " If this market is short of dollars, it is the government's intention to let it be so, and the purpose is to keep the yuan's value under control," said a senior trader at a European bank in Shanghai.

  " For now, the government's policy appears to keep the yuan stable, not to let the currency appreciate significantly nor let it depreciate," adding that the PBOC was likely to stick to this strategy in the medium term.

  Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3440, down slightly from 6.3510 at the close on Monday.

  They still implied yuan depreciation of 0.30 percent in 12 months from Tuesday's PBOC mid-point, compared with depreciation of 0.41 percent they implied on Monday.

By Dina Kyriakidou and Lefteris Papadimas

  ATHENS (Reuters) - A former deputy head of the European Central Bank emerged on Monday as frontrunner to become Greek prime minister, as party leaders bargained over who will lead a " 100-day coalition" to push through a bailout before the nation runs out of money.

  Under EU pressure, an unaccustomed spirit of compromise seeped into Greek politics as the top parties haggled over the jobs in a government which will run Greece only until early elections in February.

  A source at the opposition conservatives said they accepted socialist Finance Minister Evangelos Venizelos could stay in his job at a time of national crisis, but said nothing had been agreed yet on who should lead the unity government.

  European Union leaders want Greece to form the coalition quickly and push the 130 billion-euro (112 billion pound) bailout through parliament, for the sake of a nearly bankrupt nation and to shore up confidence in the euro zone.

  In Brussels, EU leaders kept up the pressure, saying Greece could get a delayed instalment of emergency funding this month from the EU and IMF -- but only if the coalition gave a written commitment to the new bailout package.

  " It is essential that the entire political class is now restoring the confidence that had been lost in the Greek commitment to the EU/IMF programme," said EU Economic and Monetary Affairs Commissioner Olli Rehn.

  Greece needs the 8 billion-euro instalment, part of an original rescue package pulled together last year, to meet heavy debt repayments next month and avoid defaulting. However, lenders have held back due to a series of disputes with Athens.

  Even the United States weighed in, with the White House urging Greece to move as quickly as possible to fulfil its commitments under the rescue package, as speculators pounded euro zone bond markets.

  STILL NO NAME

  By late evening the socialist PASOK party and conservative New Democracy had still not named a new prime minister, and the opposition source refused to comment on speculation that former ECB vice president Lucas Papademos would get the job.

  Talks continued and the cabinet of outgoing Prime Minister George Papandreou was due to meet at 10 a.m. (British time) on Tuesday.

  However, the source told Reuters that New Democracy was willing to let Venizelos stay. " The economic ministries, including finance minister Venizelos and his team, should stay for the sake of continuity," said the source, giving the first indication of who would occupy any of the cabinet posts.

  New Democracy would back the 2012 budget and a bond swap plan contained in the bailout package, under which the value of banks' holdings of Greek government debt will be halved.

  While the party would support the coalition, it wanted no cabinet seats itself, the source said. However, the socialists had to hand certain major ministries such as justice, defence and the interior over to non-party technocrats, he said.

  Whoever leads the transitional government of national unity will have a monumental task in restoring order to a country whose chaotic economy and politics are shaking international faith in the entire euro project.

  Despite the sealed lips on both sides, Papademos remained a possible frontrunner for premier. An aide said the Greek economist, who left the ECB last year, had arrived in Athens on Monday from the United States where he is a Harvard academic.

  Outgoing Prime Minister George Papandreou has been in touch with Papademos, a senior government official told reporters. " The prime minister had several telephone contacts with Mr Papademos in the last days," the official said.

  Papademos oversaw the nation's adoption of the euro in 2002 as Bank of Greece governor before moving to the ECB, and is a well-known figure in European capitals.

  Another possible candidate emerged on Monday. European Ombudsman Nikiforos Diamandouros, who handles complaints against EU institutions, said he had been approached to become a possible candidate to lead the coalition and might be ready to " contribute" under certain conditions.

  Greek media also raised a third possible candidate, the country's envoy to the IMF, Panagiotis Roumeliotis, a former socialist economy minister.

  A PROBLEMATIC CABINET

  Greeks worry that any new premier will struggle merely to get Papandreou's socialist PASOK party and New Democracy to work together. " I'm afraid the new government will very soon turn out to be problematic," conservative former finance minister Stefanos Manos told Reuters.

  " The new prime minister will ... not give the impression that he is in charge. Everyone will be looking to the two party leaders who will be running things behind the scenes," he said, adding: " The civil service won't implement any decision and everyone will be waiting for the election."

  At least the two parties agreed on the likely lifespan of the coalition, deciding in the early hours of Monday morning that February 19 would be the preferred date for an election.

  Papandreou, who sealed his fate last week with a shortlived attempt to call a referendum on the bailout, will stand down when the new government takes over, under a deal sealed with New Democracy leader Antonis Samaras on Sunday.

  Greeks have suffered immensely in the two years that Papandreou has run the country. International lenders have demanded wave after wave of pay and pension cuts, plus tax increases and job losses in return for emergency aid. This has helped to keep Greece in four successive years of recession.

  The Communist PAME labour group will hold a rally in Athens on November 10 to oppose a new government which it said " has the task to save the monopolies and crush the popular movement."

  " They want to vote through the new bailout... which will leave Greek people with their hands tied for many years."

  Greek bank shares, the country's best benchmark of market sentiment with the government shut out of bond markets, rose 3 percent on the coalition deal.

  A new coalition would be sworn in and hold a confidence vote within a week if all goes to plan, the government says.

  Many Greeks remained sceptical about a coalition tasked with imposing more austerity to tackle a huge budget deficit.

  " Hurrah, we are saved!" said plumber George Vihos sarcastically. " Why should we celebrate now that they will make sure we bear the pain?"

  Papandreou had sought the referendum to show that harsh cuts demanded in the bailout had public support, but the risk that a " no" vote could bring about a sudden bankruptcy caused mayhem in markets, anger in Europe and rebellion in the ruling party.

  He soon ditched the idea and won a confidence vote in parliament, but only after promising to make way for the national unity coalition.

By Ryan Vlastelica

  NEW YORK (Reuters) - U.S. stocks closed a volatile, lightly traded session slightly higher on Monday, with sentiment continuing to shift with the latest headline from Europe.

  Wall Street spent most of the session lower before rebounding after Juergen Stark, a member of the European Central Bank's Executive Board, said the region's debt crisis might be overcome in " one or two years at the latest."

  In a signal that investors remain cautious, the strongest performers were healthcare and telecommunications stocks, both considered defensive sectors. The S& P Health Care sector rose 1.2 percent, with Pfizer Inc gaining 2.1 percent to $20.07.

  Volatility in the stock market has become more closely correlated with shifts in European bond markets, another sign of Europe's influence on U.S. equities.

  " Given the overhang that Europe has been having on equities, stocks are going to be subject to intraday moves based on innuendo or conjecture as much as fact," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

  " Any news that's viewed positively is going to move the market, but I don't trust the move. We could just as easily fall back down."

  The Dow Jones industrial average was up 85.22 points, or 0.71 percent, at 12,068.46. The Standard & Poor's 500 Index was up 7.89 points, or 0.63 percent, at 1,261.12. The Nasdaq Composite Index was up 9.10 points, or 0.34 percent, at 2,695.25.

  The latest source of anxiety is Italy, where Prime Minister Silvio Berlusconi defied pressure to resign, keeping markets on edge before a key parliamentary vote on budget reforms.

  Volume was light, with about 6.3 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.

  Italian government bond yields rose to their highest since 1997 as political turmoil in Rome threatened to drag the euro zone's third-largest economy deeper into the region's debt crisis.

  " The big risk is that the Italian government doesn't accept the austerity plan, which is Greece but on a scale a thousand times larger than Greece," said Jeff Buetow, chief investment officer at Innealta Capital in Austin, Texas.

  Buetow, who helps oversee about $3 billion in assets under management, said his firm had reduced equity exposure in recent weeks because of European uncertainties. " There's a lot more downside risk than upside risk, and a lot of risk in general," he said.

  Adding to the uncertainty, Greece's outgoing Socialist prime minister and conservative opposition leader raced to forge a coalition government and implement a new bailout program.

  Equities have been very sensitive to headlines from Europe, especially with a light U.S. economic calendar this week and as earnings season winds down.

  The CBOE Volatility Index VIX fell 0.9 percent after rising earlier in the session. Fresh worries about sovereign debt default have boosted the stock market's volatility.

  Priceline.com Inc sank 4.7 percent to $485.15 in extended trading after the company reported results below expectations.

  Consumer electronics chain Best Buy Co Inc lost 3.1 percent to $26.46 after the consumer electronics chain said it was buying British partner Carphone Warehouse Group Plc for $1.3 billion and scrapping plans for a chain of European megastores.

  On the NYSE, about 52 percent of stocks closed in positive territory, while on the Nasdaq, about 14 fell for every 11 that rose.

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

 

  By Clyde Russell

  SINGAPORE, Nov 8 (Reuters) - The merry-go-round of sovereign debt crisis, resolution and renewed crisis in Europe has boosted the price of gold, but the future for the yellow metal still lies firmly in Asia.

  After plunging about 16 percent three weeks after it hit a record high of $1,920.30 an ounce in early September, gold has climbed almost 12 percent to trade just below $1,800 now.

  While it may be too much of a stretch to say the precious metal has been following every twist and turn of the European saga, it does appear that gains and retreats since the late September low have been related to the news headlines.

  This is backed by an increase in gold held by the vehicles favoured by investors, namely exchange traded funds and futures.

  Holdings in the SPDR Gold Trust, the world's largest gold ETF, have risen by almost 30 tonnes since Oct. 10 to 1,255.7 tonnes, a gain of 2.25 percent.

  Open interest and net long positions in gold futures and options have also been ratcheting up in recent weeks, according to the U.S. Commodity Futures Trading Commission.

  Net longs rose to 148,279 contracts in the week to Nov. 4, a gain of 9.4 percent over the prior week, while open interest jumped 14.6 percent to almost 810,000 contracts.

  While both of these are well off the year's peaks seen in August, as gold was heading to its record high, they have been on an upward trend since the second week of October.

  So, taken together this tells us that it's likely some of gold's recent gains have been made on the back of safe haven demand given Europe's ongoing woes.

  But ultimately the main driver of gold's outlook is the demand from consumers in China and India, and there may be positive news on this front as well.

 

  China's gold imports from Hong Kong jumped 30 percent in September from the prior month to a record 57 tonnes, according to official data.

  China doesn't publish gold trade data, so it's impossible to know for sure that Chinese demand is surging, as the Hong Kong figures may suggest.

  It's also not certain what share of China's gold imports come from Hong Kong, but it may be around 40 percent, based on some numbers revealed last year by the Shanghai Gold Exchange.

  The World Gold Council will likely release its third quarter gold demand report next week, and then the picture will become clearer.

  What we do know is that almost 82 percent of gold demand in the second quarter was for jewellery, bars and coins, while only 5.6 percent was for ETFs, according to council data.

  We also know that India and China accounted for 55 percent of total world demand of jewellery, bars and coins, and that their buying has been rising rapidly, with increases of 38 percent and 28 percent respectively from the year earlier periods.

  The partial data from Hong Kong suggests that Chinese demand may well have held up in the third quarter, and if the same can be said for India, it should show up in a robust reading for world gold demand in the third quarter.

  For the gold bulls to get excited, it would probably take a rise in total gold demand to above 1,000 tonnes in the third quarter, from the second quarter's figure of 919.8 tonnes.

  It's also likely that if consumer demand has held up in China and India, it will be on the back of high inflation and a lack of confidence in other investments.

  India's inflation rate was 9.7 percent in September and has been around double digits all year, while China's has started slowing, but the last reading was 6.1 percent, although the October forecast is for a drop to 5.5 percent.

  Nonetheless, these inflation rates encourage gold buying as can be illustrated by the anecdote about the mother of a colleague of mine.

  She's a retired, middle class Chinese who, having given up on investing in shares, buys 1 gram of a gold a month at a cost of about 400 yuan ($63).

  This sounds like a tiny amount of gold, and it is, but if millions of Chinese are investing this way, very quickly all the 1 gram purchases add up to tens of tonnes.

  So, while gold's immediate future may be dictated by events in Europe, over the longer term it's the actions of Chinese and Indian consumer that will count. (Editing by Miral Fahmy)

By Khaled Yacoub Oweis

  AMMAN (Reuters) - Troops and militiamen loyal to Syrian President Bashar al-Assad moved into a residential district of Homs overnight Monday after six days of tank bombardment that killed scores of people in the hotbed of unrest, residents and activists said.

  Six civilians, including two women and an eight-year-old, were killed elsewhere in the city, Syria's third largest, and its rural environs, they said, in a military crackdown to suppress protests and an emerging insurgency against Assad.

  At least 100 people were killed in Homs last week, mostly from tank fire into the Bab Amro district, the Syrian human rights organisation Sawasiah said, amid a growing Arab and Western outcry over rising casualties.

  The government says it is fighting armed gangs. Events in Syria are difficult to verify independently because the government has barred most foreign journalists.

  " They are now storming houses and arresting people.... The shabbiha (pro-Assad militia) have brought pick-up trucks and are looting buildings," Raed Ahmad, one of the activists, said by telephone from Homs. He said most residents had fled Bab Amro.

  Qatar's prime minister has called for Arab states to meet next Saturday to address Syria's failure to implement a deal struck with the Arab League last week to end its offensive.

  Under the agreement, Syria was supposed to pull its military out of restive cities, set free political prisoners and start talks with the opposition, which seeks Assad's removal and more democratic freedoms, within two weeks.

  " The regime wants everything to look spic and span for the Arab League. They even started painting army troop carriers police blue and the shabbiha are wearing brand new police uniforms churned out by state factories," Ahmad said.

  Omar Idlibi, a member of the Local Coordination Committee activist's organisation, told Reuters from Beirut: " They were fighting tanks with mostly rifles. The Syrian army siege has basically turned Homs into a disaster zone."

  " ABSOLUTELY UNACCEPTABLE"

  Speaking after a meeting with Yemeni Nobel peace laureate Tawakul Karman in Paris, French Foreign Minister Alain Juppe said the behaviour of the Syrian authorities was " absolutely unacceptable" and that it " could no longer be trusted."

  " Its acceptance of Arab League plan was followed in the immediate hours by a new round of repression and new massacres."

  Juppe said Syria is witnessing " a new round of repression" after the Arab initiative and France was working to raise international pressure on Damascus and strengthening ties with the Syrian opposition.

  Syrian authorities have not commented on the offensive on Homs but have repeatedly said that terrorists were operating in the city, killing civilians and police, and that local inhabitants wanted them " cleansed."

  They say Islamist militants and foreign-backed armed gangs have killed 1,100 members of the security forces during seven months of unrest. The United Nations says more than 3,000 people have been killed in Assad's crackdown. Syrian activists put the number of civilians killed as high as 4,200.

  Activists reported dozens of arrests Tuesday in Latakia, Damascus suburbs and the southern Hauran Plain, on top of tens of thousands of people who have been rounded up and thousands who have disappeared since the uprising against 41 years of Assad family rule started in March.

  Many are in secret police dungeons or in sports facilities that have been turned into makeshift prisons, they said.

  Western countries have denounced Assad for continuing the violence, but have effectively ruled out military involvement like the air strikes that helped topple Libya's Muammar Gaddafi.

  " I deplore what is happening in Syria. It is particularly disappointing that it is taking place now after the Syrian government said a few days ago that they accepted the request of the Arab League to withdraw their forces from towns and ... release political opponents and to end the killing," British Foreign Secretary William Hague said in Strasbourg.

  But, he said: " I don't think the answer to this now or subsequently would be a military (one) from outside.... We will not be able to apply the same answer in Syria as in Libya."

  Arab countries so far have not demanded Assad step down. They fear a potential contagious chaos may ensue, given Syria's volatile sectarian divisions, which are replicated in varying degrees in other Arab countries.

  Tit-for-tat sectarian killings were reported in Homs last week, between Sunni Muslims, who form the majority of Syria's 20 million population, and members of Assad's minority Alawite sect, who dominate the country's levers of power, controlling the military, security apparatus and key sectors of the economy.

  Syria's representative to the Arab League, Youssef Ahmad, said Damascus had " gone a long away" towarHd implementing the Arab League plan, pointing to the release of around 500 detainees under a conditional amnesty announced last week.

  Ahmad, speaking on state television, renewed Syrian accusations that the United States was inciting bloodshed.

  He said the Arab League must ignore what he described as false media reports and that Damascus had supplied " all the information that shows the aggression practised by the armed terrorist groups on civilians and the security forces."

  About 1,100 political prisoners, including opposition figure Naji Tayyara, went on a hunger strike at the Homs central jail Monday to protest their continued incarceration despite the Arab League deal, activists said.

By David Fogarty

  SINGAPORE (Reuters) - Australia is set to unlock more than A$13 billion in government funds for clean energy that could boost investments for large solar power stations, but wind farm developers are at risk if the money disrupts an existing green scheme.

  The Senate on Tuesday passed laws supporting renewables and a national carbon price to accelerate investment in cleaner energy.

  Geothermal, wave power and energy efficiency projects are also likely to benefit from two independent bodies to be approved by the Senate, the A$10 billion dollars (6.4 billion pounds) Clean Energy Finance Corporation (CEFC) and A$3.2 billion Australian Renewable Energy Agency.

  Wind farms and household solar are unlikely to get access to the cash because the technologies are more mature, cheaper than other renewables and less in need of support.

  But getting the design right for the CEFC in particular will be crucial, energy policy analysts say, or the risk is undermining an existing scheme that has driven major investment in wind farms.

  " Not only does the CEFC stimulate certain technologies but it also acts against other technologies, so the wind industry might come out really loudly against the CEFC," said Tony Wood, director of the energy programme at the Grattan Institute in Melbourne, an independent think tank.

  Australia is blessed with vast potential to generate renewable energy from the sun, wind, geothermal, wave as well as hydro power. While government programmes have tried to support green energy, about 90 percent of the country's power comes from coal and gas.

  With energy costs and greenhouse gas emissions rising, the government is trying to change this.

  The CEFC starts in 2013 and runs for 5 years, with half the money set aside for renewable energy and the remainder to support lower-emissions technologies and energy efficiency. It aims to commercialise green energy power generation that needs additional financial help to make it viable.

  It potentially represents the most important programme to ramp up green investment since the government overhauled and expanded a market-based scheme that mandates a national target of 20 percent renewable energy by 2020.

  REVIEW

  That scheme, the Mandatory Renewable Energy Target, has led to a dramatic rise in wind farm investment, with more than 2,000 megawatts of capacity now installed and about another 9,000 MW of projects proposed.

  The projects earn renewable energy certificates, currently trading at about A$40 per megawatt/hour, that retailers and some generators have to buy to meet green energy targets.

  The government is reviewing the design of the CEFC, with wind farm developers fearing a major scaling up of rival renewable energy technologies that would also earn renewable energy certificates could distort the market.

  " The CEFC needs to have the right principles around it to make sure that it doesn't create a market distortion under the renewable energy target and that's what we will be advocating for strongly," said Lane Crockett, managing director, Australia, of Pacific Hydro, a large wind farm developer.

  " If there was a market distortion, it could threaten wind assets," he said, adding the A$5 billion under the finance corporation should deploy renewable energy investment for assets or generation above and beyond the 20 percent renewable energy target, and focus on less mature technologies.

  Questions remain over the level of risk CEFC is willing to take and the type of financial support for projects.

  " The CEFC, being a government-owned body, wouldn't be expected to give the rate of return that banks or others would, so people talk about it that would be just above the bond rate," said Paul Curnow, who advises on carbon, renewable energy and environmental markets for law firm Baker & McKenzie in Sydney.

  " It could be loan guarantees, early stage equity, concessional loans," he said, steps that would help bridge the price gap in servicing debt costs and the money a project earns from selling power and earning renewable energy certificates.

  A major issue for many large renewable energy projects is the high initial capital cost and debt repayments. Depending on the technology, the long-term power purchase agreement as well as money from renewable energy certificates might not cover the debt servicing costs. Sweeteners become essential.

  The smaller Australian Renewable Energy Agency, set to start next year and run for nine years, will focus on grants to emerging green energy technologies to help with research and development and bringing them up to commercial scale.

  WAVE AND GEOTHERMAL

  The agency will repackage existing programmes, with additional support for large-scale solar expected, along with money for geothermal and wave power developers.

  Beneficiaries could include Carnegie Wave Energy Ltd and Oceanlinx and geothermal companies Geodynamics Ltd, Green Rock Energy Ltd and Pacific Hydro.

  " In Australia, local banks will often only lend for 5 to 8 years, so if the CEFC is able to take a long-term view, able to invest 10 to 15 years, then the returns on areas such as solar and geothermal start to make more sense as the returns on investment kick in with higher energy and carbon pricing over this longer period," said Curnow.

  Geodynamics says it aims to complete a 25 MW plant by Dec 2013 and is targeting production of more than 500 MW by 2018.

  Large-scale solar is set to benefit from both funding bodies. This includes utility-scale solar photovoltaic (PV) power plants and solar thermal, which focuses the sun's energy to drive steam turbines to generate power.

  These can use large numbers of parabolic troughs to heat fluids to drive the turbine, or use acres of mirrors to focus sunlight to a point on top of a tower.

  Leading power generation equipment maker Alstom is confident it will benefit since its turbines can be used for both types of solar thermal technology. Alstom also has a stake in U.S. solar tower firm BrightSource.

  " We haven't secured deals with anybody at this point," said Gwen Andrews, vice-president Asia and Oceania for environmental policies and global advocacy at Alstom.

  " But with the new funding announcements coming out, we are very hopeful of the future for solar thermal in Australia."

  The government earlier this year announced it would partially fund the country's two largest solar power stations with total capacity of 400 MW. Investors include French nuclear firm Areva, BP Solar and Pacific Hydro.

  Curnow said it was too early to judge how successful the CEFC would be. If the aim was to solely support the target of 20 percent renewable energy, then the body might not be able to spend the full A$10 billion because there were already sizeable green energy investments in the pipeline.

  " If you just need a 20 percent target, then assuming all of those projects going forward need some support from the CEFC, you have to question whether they could spend that money, since the aim is to leverage private investments," he said.

  " So it does imply that we are going to see more renewables than the 20 percent."

  (Editing by Clarence Fernandez)

  (This story was corrected in paragraph 3 to make clear Senate has yet to vote on both green energy bodies)

* Swissie nurses hefty losses on intervention fears

  * Euro seen under mounting pressure as Italy vote looms

  * Greeks scrambling to pick new PM to implement bail out

  * EUR/USD spot resilient, but risk reversals suggest deep anxiety

  * Aussie slides in thin trade as several players sell

  By Antoni Slodkowski

  TOKYO, Nov 8 (Reuters) - The threat of more intervention by Swiss authorities kept the franc under pressure on Tuesday, while the euro dipped ahead of a crucial vote in Italy, with the country's bond yields at 14-year highs and Greece scrambling to pick a new premier.

  The Swiss franc extended hefty losses sustained on Monday after the country's central bank officials stepped up their warning of more action to curb the currency if needed. The Swiss National Bank capped the franc at 1.20 francs per euro in September and vowed to defend that level with all means necessary.

  Even the shaky euro extended gains by 0.2 percent to 1.2418 francs after making its biggest one-day jump in two months on Monday. The dollar climbed above 0.9037 francs for the first time in almost three weeks.

  " The SNB has done a pretty good job so far, pressuring the franc with verbal warnings only. The peg is at 1.20 francs, but their ultimate goal may be 1.25, and we are still some distance away from that," said Teppei Ino, currency strategist at the Bank of Tokyo-Mitsubishi UFJ, adding that further warnings were likely.

  The SNB remarks came after the Swiss franc started creeping back up amid further deepening of the debt crisis in the euro zone, with Italian bond yields approaching levels seen as unsustainable on Monday.

  With the anxiety surrounding one of the world's biggest sovereign bond markets, the euro shed 0.3 percent to $1.3743 , down from $1.3773 late in New York and well off a 2-month high of $1.4248 hit on Oct. 27.

  That said, it was still seen as resilient after holding roughly in the middle of the $1.3608-$1.3868 range of the past week, puzzling traders who had expected a bigger fall on the jump in Italy's borrowing costs.

  One explanation is that euro bears are still cautious about taking aggressive short positions after being badly burnt in late October when the euro briefly surged above $1.4200.

  Some traders fear the common currency could test the upside of the $1.3880-1.3670 upwardly sloping channel formed this month, especially as the market remains somewhat short.

  If such a corrective rally were to gain steam, the euro could pierce a layer of offers lurking between $1.3810 and $1.3870 to target resistance at $1.3930 -- the 50 percent retracement of the $1.4248-$1.3608 slide, they said.

  For the time being, bids were seen supporting the euro right below its session low around $1.3725.

 

  DARK CLOUDS

  Still, the long term outlook for the euro remains brittle.

  " The threat to the FX market, obviously, is that a country with nominal GDP growth of just 1.8 percent at the last count and debt totalling 120 percent of GDP, cannot sustain 6.5 percent yields for long," said Kit Juckes, strategist at Societe Generale.

  Italy's parliament gears up to vote on Tuesday and Silvio Berlusconi's government could fall, an event that may be welcomed by markets and spark a brief relief rally, though further political turmoil could follow.

  In addition, Greece's outgoing prime minister and opposition leader rushed to put in place a national unity government for just long enough to save their country from imminent default by implementing a new bailout programme.

  " The euro is watching to see who will head the new Greek government, how the Italian budget vote will go, and whether it will lead to a change in government. But the pressure is building, even if it is visible only in the bond market," said Juckes.

  This view was underscored by persistent hedging against downside risks in option markets, with 25-delta 1-month risk reversals at 4.3/3.3 favouring euro puts, not far from extreme levels of 4.45 hit in September when the euro began its slide and well above peaks seen in 2008 and 2010.

  Market players added that Rome's auction of fixed rate bonds on Nov. 14 was also in focus as a possible trigger for a euro sell-off if it leads to even higher borrowing costs.

  The risk-leveraged Australian dollar lost 0.7 percent to $1.0311 as most Asian bourses turned red and U.S. stocks futures fell 0.5 percent < SPc1> with traders citing talk of selling by Swiss, Australian and U.S. names.

  The dollar index has been stuck in a range of 76.574-77.676 and last stood at 77.090. Against the yen, the greenback was also barely changed hovering at 78.04 yen . (Additional reporting by Ian Chua in Sydney Editing by Joseph Radford)

* Olympus plummets 29 pct by daily limit after M& A admission

  * Nomura skids nearly 15 pct to lowest level in at least 37 years

  * Toyota sheds 1.7 pct ahead of downbeat earnings, guidance withdrawal

  By Lisa Twaronite

  TOKYO, Nov 8 (Reuters) - The Nikkei share average dropped more than 1 percent on Tuesday, with investors fearful about Europe's debt situation ahead of an Italian parliamentary vote on budget reforms, and as scandal-hit Olympus plunged after saying M& A funds were used to cover securities losses.

  Italian woes pressured some stocks exposed to the debt-laden country, with Nomura Holdings Inc dropping almost 15 percent to its lowest since at least 1974.

  In Rome, Prime Minister Silvio Berlusconi defied huge pressure to resign as he struggled to hold a crumbling centre-right coalition together after being forced to accept intrusive IMF surveillance of his economic reforms.

  Toyota Motor Corp fell 1.7 percent. After the market close, it posted a 32.4 percent drop in quarterly operating profit and withdrew its full-year profit forecasts as Thai floods pose a fresh threat to production while supply shortages from the March earthquake kept output low.

  " Because Toyota withdrew its full-year guidance, there is a perception that not all of the bad news is out of the way, and investors who have held onto its shares until now are likely thinking of giving up," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

  The Nikkei ended down for the second straight day, falling 1.3 percent to 8,655.51. The broader Topix index lost 1.7 percent to 738.03.

  Volume was moderate, with 1.85 billion shares changing hands, up from Monday's 1.45 billion. Nearly eight shares fell for each one that rose.

 

  POSITIONING FOR LOSSES

  U.S. stock futures also declined, suggesting investors were positioning for losses ahead of the Italian vote, with S& P 500 e-mini futures < 0#ES:> down 6.5 points at 1,251.

  Olympus slid 29 percent and by its daily limit to end at a 16-year low of 734 yen after it admitted for the first time on Tuesday that controversial acquisitions had been used to cover up losses on securities investments dating back to the 1980s, succumbing to weeks of pressure that has battered the company's share price.

  Olympus President Shuichi Takayama blamed Tsuyoshi Kikukawa, who quit as president and chairman on Oct. 26, Vice-President Hisashi Mori and auditor Hideo Yamada for the transactions, adding he would consider criminal complaints against them if necessary. Mori would be dismissed, the company said.

  Nomura fell 14.9 percent to 245 yen and was the heaviest traded issue by turnover on the main board, with nearly 8 times the issue's average 30-day volume changing hands. Earlier this month, it estimated its exposure to Europe at $3.55 billion, mostly in Italian government securities and positions that mature in the next five months.

  Toyota said on Tuesday its operating profit for July-September was 75.39 billion yen ($966 million), worse than an average estimate of 101.3 billion yen in a Reuters survey of 12 analysts. Second-quarter net profit was 80.42 billion yen, down 18.5 percent.

  For the year to March 31, 2012, Toyota had forecast an operating profit of 450 billion yen, but it withdrew its full-year forecasts for profit and vehicle sales due to uncertainty surrounding the Thai floods.

 

  (Additional reporting by Mari Saito Editing by Joseph Radford)

SHANGHAI, Nov 8 (Reuters) - China's benchmark stock index closed down 0.2 percent on Tuesday as caution prevailed ahead of the release of China's inflation data due the following day, with weakness in property issues offsetting gains in banking and energy stocks.

  Annual inflation is likely to slow to 5.5 percent in October, the third straight month of decline after hitting a three-year high of 6.5 percent in July, according to a Reuters poll, but few expect the government to immediately reverse to an easy monetary policy.

  The Shanghai Composite Index finished at 2,503.8 points, continuing a technical correction from Monday. The index rose nearly 10 percent over the previous two weeks amid expectations that the government may gradually relax monetary policy. ($1 = 6.34 Yuan) (Reporting by Lu Jianxin and Kazunori Takada)

* Italian debt woes weigh on market

  * Fears of supply disruptions support prices

  * Coming Up: U.S. API petroleum stocks 2130 GMT (Updates prices, adds China CPI forecast)

  By Francis Kan

  SINGAPORE, Nov 8 (Reuters) - Brent crude held steady above $114 on Tuesday, after gaining sharply a day earlier, as investors weighed firm seasonal demand and the prospect of a supply disruption from Iran against concerns over Italy's sovereign debt risk.

  Brent crude < LCOc1> gained 14 cents a barrel to $114.70 by 0636 GMT, after settling $2.59 higher on Monday at $114.56, its highest in more than 7 weeks. U.S. crude < CLc1> traded 21 cents higher at $95.73 a barrel, after rising to as high as $95.87.

  Italy overtook Greece as the prime threat to the stability of the euro zone after surging bond yields threatened to stifle the debt-ridden country's fund raising ability. Borrowing costs for the euro zone's third-largest economy rose to their highest since 1997, widely seen as unsustainable for its debt.

  " The news on Italy is affecting sentiment, but prices will be supported by seasonally strong demand due to the cold winters in China and Europe," said Ken Hasegawa, commodity derivatives manager at Newedge Brokerage in Tokyo.

  " Iran is the wild card. If there are sanctions on exports, that will change the situation dramatically," he added.

  Iran's dispute with the West intensified ahead of a report from the U.N.'s International Atomic Energy Agency that is expected to show Iran's nuclear program is being geared toward making weapons.

  On the demand side, China's top refineries plan to raise their crude oil throughput in November to the highest in a year, as state oil firms rev up operations amid domestic diesel shortages and the restart of a key plant after maintenance.

 

 

 

  Market participants will be eyeing Chinese inflation data due out on Wednesday to assess the chance of policy easing in the world's second-biggest oil consumer.

  China's annual inflation is expected to ease to 5.5 percent in October, the third straight month of decline from a three-year high of 6.5 percent in July, as food price rises cool.

  The focus on Italy comes just as the euro zone crisis looked set to stabilise, with Greece working to put in place a new government and push through a bailout agreement.

  " While the prospect of a unity government is a positive for Greece, the market has become focused on the potentially much larger problem of Italian debt markets, now that yields have reached new highs," JP Morgan said in a research note.

  Europe's debt woes pressured the euro , while spot gold was steady, after rising 2 percent in the previous session on safe-haven demand. The crisis also sent Asian shares lower and capped gains in base metals.

  Brent is expected to fall to $113.08 per barrel, while U.S. oil will retrace to $93.46, according to Reuters market analyst Wang Tao.

 

  SUPPLY ISSUES

  Oil prices will also be supported by a slower ramp-up in exports from Libya, and continued unrest in oil producers Syria and Nigeria.

  " Libyan oil production has recovered a little faster than expected and is currently above 500,000 barrels per day. But more production does not equate necessarily with sustained higher exports that would depress Brent prices -- exports, to date, have been at best sporadic," said BNP Paribas in a report.

  In Syria, troops and militiamen loyal to President Bashar al-Assad moved into a residential district of Homs overnight on Monday after six days of tank bombardment that killed scores of people in the hotbed of unrest, residents and activists said.

  U.S. crude oil inventories rose for a third straight week due to higher imports, a preliminary Reuters poll of analysts showed on Monday.

  On average, crude stockpiles were forecast up 300,000 barrels for the week ended Nov. 4, the poll of six analysts showed. (Editing by Clarence Fernandez)