* Dollar firms as stock slide dents risk appetite * SPDR gold ETF holdings decline 0.1 pct; Indian demand down * ETF Securities London palladium ETC holdings hit record (Updates throughout, changes dateline from TOKYO) By Jan Harvey LONDON, Oct 22 (Reuters) - Gold prices softened in Europe on Thursday as a decline in the equity markets dented appetite for risk, benefiting the dollar at the expense of higher-yielding currencies and lifting it from 14-month lows against the euro. A sharp fall in risk appetite, as seen in the first quarter of 2009, tends to lift gold, which is often seen as a safe store of value. But lower risk aversion has mainly benefited the dollar at gold's expense. [ID:nLF651040] Gold is more expensive for non-U.S. investors and less attractive as an alternative asset as the dollar firms. Spot gold was bid at $1,054.45 an ounce at 0940 GMT against $1,058.35 late in New York on Wednesday. U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $9.20 to $1,055.30. Societe Generale analyst David Wilson said given gold's weak underlying fundamentals, its rally to record highs of $1,070.40 last week and its continued strength are difficult to justify. "When you look at the inflation outlook, the U.S. bond market is not factoring in any inflation for a while," he said. "The key driver is going to remain exchange rates. They have been the driver of the smaller moves, though in terms of the bigger moves, there have been some more technical issues there." The dollar rose broadly, bouncing back from a 14-month low against the euro and a basket of six currencies <.DXY>, as a slide in global share prices blunted risk appetite and put the brakes on a rally in higher-risk currencies. [FRX/] European shares fell 1.3 percent, tracking losses on Wall Street on Wednesday, as worse than expected quarterly results from Ericsson sparked profit taking. [MKTS/GLOB] SLACK DEMAND Demand for physical gold remained slack, with jewellery buying tailing off in major consumer India after last week's festival period, with a decline in the rupee making dollar-priced assets more expensive. [ID:nBOM469303] "Post-Diwali, demand has turned slack," said a dealer with a bullion-dealing bank. The world's largest gold exchange-traded fund, the SPDR Gold Trust , also reported an outflow on Wednesday. Its holdings fell nearly 40,000 ounces or 0.1 percent. "Speculator interest is slowly easing, while physical demand concerns are as ever present at record high prices," said VTB Capital analyst Andrey Kryuchenkov in a note. Among other precious metals, silver was bid at $17.45 an ounce against $17.66 late on Wednesday, tracking losses in gold. Platinum was at $1,356.50 an ounce against $1,359. The world's biggest platinum producer, Anglo Platinum , said its third-quarter production of refined platinum fell 9.9 percent from last year. [ID:nLM699930] Lonmin , the world's third-largest platinum miner, said its metal output fell 6 percent in the year to Sept., but chief executive Ian Farmer was positive on prices. [ID:nLM511574] "Jewellery demand and investment demand have been very helpful to us and very solid, and hopefully that will continue, he told Reuters in an interview. "But I think the growth area will be industrial demand as it starts to come back over the course of the next 18 months." Palladium bucked the trend to rise 0.45 percent. At 0940 GMT it was bid at $334 against $332.50, lifted by fears over the outlook for Russian and South African supply and hopes for a recovery in automotive demand. Platinum and palladium are primarily bought by the car industry for use in catalytic converters. But investment demand for the metal also remains strong. ETF Securities said holdings of its London palladium exchange-traded commodity rose nearly 9,000 ounces on Wednesday to record highs just below 550,000 ounces. [ID:nLM21205] (Additional reporting by Julie Crust; Editing by Sue Thomas)

Source