LONDON, Sept 15: Gold climbed more than 2 per cent after Lehman Brothers filed for bankruptcy protection, spurring buying of gold as a safe haven from risk and knocking the dollar to two-month lows against the yen.

However, the precious metal retreated from highs as oil prices slipped and selling of gold held by exchange-traded funds dented investor confidence.

Spot gold was at $772.90/774.10 at 1022 GMT, up $9.45 from Friday’s nominal close in New York but off session highs of $784.90.

With the kind of turmoil we have had at Lehmans, you would think there would have been a bit more of a boost, said Standard Chartered analyst Daniel Smith.

The rebound has been a bit disappointing, given the rally we’ve seen in other markets such as base metals. Gold rose sharply earlier in the session as news broke of Lehman’s bankruptcy, spurring buying of gold as a safe haven and pressuring the dollar.

A weaker dollar typically benefits gold as it boosts the precious metal’s appeal as an alternative investment.

News that Lehmans is filing for bankruptcy raised concerns over the US economy, thereby causing the dollar to weaken and investors to seek “safe” assets, said Fairfax analyst John Meyer.

Gold is generally viewed as a safe haven in time of economic trouble.

Traders were further spooked by news that Bank of America has agreed to buy Merrill Lynch, increasing fears over the stability of the global financial system.

The Federal Reserve announced emergency measures on Sunday to safeguard the financial system, including accepting equities as collateral for cash loans.

Gold’s other main external driver, crude oil, fell more than $4 to below $100 a barrel as Hurricane Ike spared most Gulf of Mexico oil infrastructure, reducing investors’ interest in gold as an inflation hedge, analysts said.

Among other precious metals, platinum and palladium headed lower after last week’s bounce. Spot platinum was down $17.50 at $1,185.00/1,205.00 an ounce, while palladium fell $11 to $231.50/241.50.

Spot silver slipped 3 cents to $10.80/10.88 an ounce.

Earlier it rallied 3 per cent in line with gold to a session high of $11.15 an ounce.—Reuters