LONDON, Oct 9: Gold fell more than 2 per cent in Europe on Thursday as investors took profits after a rise of almost $20 an ounce on Wednesday, with firmer equities attracting cash back into the stock markets.

Spot gold was quoted at $888.70/891.70 down from $906.50 in late New York trade on Wednesday. Earlier it touched a session low of $881.15.

We are seeing some profit-taking, said Deutsche Bank trader Michael Blumenroth.

We had a lack of follow-through buying after we hit $920 yesterday.

That seems to be a tough level of resistance. An uptick in equities is pressuring gold. European stocks climbed after fresh government and central bank action to combat the financial crisis.

Crude prices, an important external driver of gold, which is often bought as a hedge against oil-led inflation, are also softer, undermining support for bullion. Investors are worried about the effect of the credit crisis on demand.

Standard Bank analyst Manqoba Madinane said vulnerability in the oil price could pressure gold, especially when coupled with equity index futures pricing strong gains in the US markets.

This, coupled with oil prices weakness, could decrease systemic risk indicators thanks to the central bank cuts, he said. Precious metal investment sentiment could be cautious today. The dollar slipped a touch against the euro, but rose against the yen.

Strong demand for physical gold from both institutional and smaller investors is still likely to support bullion.

People are buying all the physical gold available, said Blumenroth.

This will hold up the market. Buying of gold exchange-traded funds -- which issue securities backed by physical gold -- has been particularly strong.

The largest gold-backed ETF, New York’s SPDR Gold Trust, says its holdings rose to a record 763.9 tons on Wednesday.

The world’s biggest silver-backed ETF, the iShares Silver Trust, also recorded an inflow on Monday, the last day for which data has been released. Its holdings now stand at 6,877.15 tonnes.

Spot silver was trading at $11.58/11.65 an ounce against $11.70 an ounce in late New York trade on Wednesday.

Among other precious metals, platinum fell to $994.50/1,018.50 an ounce from $990.50, while palladium slid to $195/205 from $192.50.—-Reuters