(Add details, background, analyst comment)

  BEIJING, Feb 20 (Reuters) - China bought 140.9 billion yuan ($22.37 billion) in foreign exchange in January as capital flowed back into the country after three consecutive months of net outflows, but analysts said the outlook was volatile.

  " It's hard to say whether such a monthly size of capital inflows can be sustained in the coming months," Shao Yu, an economist with Orient Securities in Shanghai, told Reuters.

  " If European debt problems worsen, hot money may flee emerging markets. In short, we believe China will see net capital inflows in 2012, but the size would be small," he added.

  China's central bank and commercial lenders bought 140.9 billion yuan in January, according to Reuters calculations based on data published by the People's Bank of China on Monday, after net sales of 100.3 billion yuan in December.

  The volume of purchases in January was smaller than the average monthly 231.6 billion yuan in 2011 and 272.4 billion yuan in 2010.

  Smaller capital inflows mean less liquidity for the banking system, requiring domestic credit creation to maintain money supply growth at the government's target rate, and is likely a key reason for China's move cut banks' required reserve ratios by 50 basis points on Saturday to 20.5 percent.

  The People's Bank of China said in its quarterly monetary policy report earlier last week that it had noticed the reappearance of capital inflows, but added it would pay close attention to whether the capital inflows are sustained.

  China's new yuan bank loans stood at 738.1 billion yuan, a number that was well below market expectations of 1 trillion yuan. Local media reported that state bank lending in the first half of February remained sluggish.

  " It's quite clear that the central bank would continue to cut RRR if capital inflows are small -- RRR is one of the key tools of the central bank to adjust liquidity," Orient Securities' Shao said.

  China's State Administration of Foreign Exchange had forecast that China would continue to see an international payment surplus in 2012, partly as China remains an attractive destination for long-term investors.

  In December, China sold a net 100.3 billion in foreign exchange, following a net sale of 27.9 billion yuan in November and a net sale of 24.9 billion yuan in October. ($1 = 6.2991 Chinese yuan) (Reporting by Zhou Xin and Don Durfee Editing by Nick Edwards)

HONG KONG, Feb 20 (Reuters) - Hong Kong shares closed lower on Monday, reversing early gains after a muted response to Beijing's second cut in bank reserve requirements and exacerbated by weakness in the energy sector as investors took profit on the year's outperformers.

  The Hang Seng Index finished down 0.31 percent at 21,424.79. The China Enterprises Index of the top mainland listings in Hong Kong finished down 0.36 percent at 11,669.51.

  The Shanghai Composite Index ended up 0.27 percent at 2,363.6 after opening just shy of its 125-day moving average at 2,389.9 in A-share turnover that while up 24 percent from Friday, was still lower than levels seen on Dec. 1 last year --the day after Beijing's previous reserve requirement cut.

 

  HIGHLIGHTS:

  * China Petroleum & Chemical Corp (Sinopec) led weakness among Chinese energy names as investors took profit on the year's outperformers after markets opened above critical chart resistance. Sinopec bled 5.5 percent in more than twice its 30-day average volume, with traders citing two brokerage downgrades including one from Citi. Before Monday, Sinopec was up 14.6 percent this year and among the leading lights on the Hang Seng Index.

  * Chinese financials were largely stronger after Beijing cut reserve requirements for commercial lenders for the second time in more than two months, but the reaction was muted compared with the previous cut in bank reserve requirements with investors viewing Beijing's latest move as more of a boost to credit supply than a clear easing. Industrial and Commercial Bank of China Ltd pared early gains to end up 0.2 percent.

  * Turnover in Hong Kong increased from Friday, but was about 27 percent lesser than Dec. 1, the day after Beijing cut bank reserve requirements for the first time in almost three years. The Hang Seng Index opened above 21,725.7, the top of a chart gap at that opened up between Aug. 4 and 5, but slumped right back into the gap by the end of the day. (Reporting by Clement Tan and Vikram Subhedar Editing by Chris Lewis)

By James Grubel

  CANBERRA (Reuters) - Australian Prime Minister Julia Gillard should sack her foreign minister, who she toppled to be premier in 2010, and end a bitter leadership crisis that threatens her minority government and is repelling voters, a senior minister said on Monday.

  Foreign Minister Kevin Rudd's supporters have called on Gillard to hold a leadership ballot, believing only he can stem haemorrhaging voter support ahead of the next election due in 2013, but a move back to Rudd risks losing the backing of key independents who give the Labour government a one-seat majority.

  Weeks of leadership instability, which became public at the weekend, now undermines Labour's chances of holding power in the state of Queensland at a March 24 poll -- the resource-rich state is also crucial for the national government's re-election.

  If Rudd did again became prime minister, opinion polls show it would do little to save Labour, which would be thrown from office with a losing margin of up to 12 seats.

  Former Labour party leader Simon Crean said Rudd should either challenge, give up his leadership hopes, or leave the ministry.

  " Clearly he's not playing as part of the team," Regional Affairs Minister Simon Crean told Australian radio. " If he can't be part of the team, he should exit the team, or challenge."

  Gillard toppled Rudd in a party-room coup in 2010 and went on to narrowly win an election and form a minority government.

  Conservative opposition leader Tony Abbott has said if he wins government he will dump her major policies, such as a carbon price to combat climate change that is due to come into force on July 1, and a 30 percent profits-based tax on iron ore and coal-mining companies.

  The resource tax, which is being watched closely by nations in South America and Africa, is a direct result of Gillard's leadership. She struck a deal with BHP Billiton, Rio Tinto and Xstrata in July 2010, after Rudd earlier failed to get miners to agree to a higher tax. Rudd also failed to get approval for a carbon price.

  RUDD CHALLENGE UNLIKELY TO SUCCEED

  The leadership question erupted when Rudd told a late-night television interview on Saturday he had learned from the mistakes of his time as prime minister, signalling he would consult and delegate more if he returned to the job.

  During his time as prime minister between November 2007 and June 2010, Rudd alienated members of his own party with his frantic work schedule and his refusal to delegate tasks or take advice from colleagues. He was also criticised by voters for failing to implement major policies.

  " There's little chance of any effective (voter) turnaround from here, but the question is whether Rudd can start the upswing," Australian National University analyst Norman Abjorensen said, adding Rudd could help save some Labour seats.

  A direct Rudd challenge would be unlikely to succeed as he has only a fraction of the support he needs within the centre-left Labour Party, said party sources.

  Rudd told reporters in Mexico, where he is attending a G20 foreign minister's meeting, that he was not contemplating a leadership challenge.

  " That is not in prospect because we have a prime minister, I am the foreign minister," Rudd said, adding he was disappointed with Crean's comments.

  Senior Labour figures now want Gillard to bring on a leadership vote next week to resolve the matter and end Rudd's hopes of a return to the prime ministership.

  On Monday, Gillard appeared to rule out a ballot.

  " I'm getting on with the job with the strong support of my colleagues," she told reporters in Canberra.

  Former Queensland state Labour premier Petter Beattie said it was clear Rudd was running a leadership campaign and the issue should be dealt with quickly.

  " We all know that's what's going on. People aren't stupid," Beattie told Australian radio. " It's time that there was a caucus meeting and the matter was dealt with once and for all."

  (Additional reporting by Krista Hughes in Mexico City Editing by Michael Perry and Paul Tait)

By Parisa Hafezi

  TEHRAN (Reuters) - A team of U.N. inspectors arrived in Tehran on Monday for talks on Iran's disputed nuclear programme, a day after the Islamic Republic ordered a halt to its oil sales to British and French companies in apparent retaliation for tightening EU sanctions.

  The European Union enraged Tehran last month when it decided to impose a boycott on its oil from July 1. Iran, the world's fifth-largest oil exporter, responded by threatening to close the Strait of Hormuz, the main Gulf oil shipping lane.

  On Sunday, its oil ministry went a step further, announcing Iran has now stopped selling oil to French and British companies, a move which will however have little or no impact on supplies reaching France or Britain.

  " Exporting crude to British and French companies has been stopped ... we will sell our oil to new customers," spokesman Alireza Nikzad was quoted as saying on the ministry website.

  Iran, which denies Western allegations that it is seeking to make nuclear weapons, has ramped up its rhetoric in recent weeks while also expressing willingness to resume negotiations on its nuclear programme.

  The five-member team from the U.N. International Atomic Energy Agency (IAEA) will hold two days of talks in Iran, but Western diplomats have played down any hopes of a major breakthrough.

  " I'm still pessimistic that Iran will demonstrate the substantive cooperation necessary," one envoy said in Vienna.

  Yet the outcome of this week's discussions is important and will be watched closely because it could either intensify the standoff or offer scope to reduce tensions.

  The European Commission says the bloc would not be short of oil if Iran stopped crude exports as it has enough stock to meet its needs for around 120 days.

  Industry sources said European oil buyers were already making big cuts in purchases from Iran months in advance of EU sanctions.

  French and Anglo/Dutch oil majors Total and Shell have been big buyers of Iranian crude but Total had already stopped buying from Iran and traders said last week that Shell had scaled back sharply.

  Shell, which has declined comment on its trade with Iran, was one of the biggest consumers of Iranian crude globally, taking about 100,000 barrels daily into Europe and about the same amount to its Japanese subsidiary, Showa Shell.

  Latest EU data, for the third quarter of 2011, shows that oil sales into Britain fell to zero and France imported 75,000 bpd, accounting for just 6 percent of its crude oil imports. Debt-ridden Greece is most exposed to Iranian crude disruption among European countries.

  MILITARY STRIKE?

  Iran says its nuclear programme is entirely peaceful but its refusal to curb uranium enrichment, which can have both military and civilian purposes, has raised concerns.

  Western powers have not ruled out using force against Iran, and there has been an intense public discussion in Israel about whether it should attack Iran to stop it making a nuclear bomb.

  The top U.S. military officer said on Sunday that a military strike would be premature as it was not clear that Tehran would use its nuclear capabilities to build an atomic bomb.

  " I believe it is unclear (that Iran would assemble a bomb) and on that basis, I think it would be premature to exclusively decide that the time for a military option was upon us," said General Martin Dempsey, chairman of the U.S. military's Joint Chiefs of Staff.

  He said he believed the Iranian government was a " rational actor."

  The West has expressed some optimism over the prospect of new talks with Tehran, particularly after it sent a letter to EU foreign policy chief Catherine Ashton last week promising to bring " new initiatives" to the table.

  " In these negotiations, we are looking for a way out of Iran's current nuclear issue so that both sides win," Iranian TV quoted Foreign Minister Ali Akbar Salehi as saying on Sunday.

  Oil is a major part of Iran's export revenues and an important lifeline for its increasingly isolated economy. It has little refining capacity and has to import about 40 percent of its gasoline needs for domestic consumption.

  Tighter sanctions, combined with high inflation, have squeezed the ability of working-class Iranians to feed themselves and their families, and this uncertainty forms the backdrop to a parliamentary vote on March 2.

  " Everything's become so expensive in the past few weeks," said Marjan Hamidi, an Iranian shopper in Tehran, " But my husband's income stays the same. How am I going to live like this?"

  (Additional reporting by Parisa Hafezi and Ramin Mostafavi in Tehran, Susan Cornwell in Washington and Fredrik Dahl in Vienna Writing by Maria Golovnina Editing by Tim Pearce and Giles Elgood)

By Jeremy Laurence and Jack Kim

  SEOUL (Reuters) - Secretive North Korea raised its military alert ahead of a live-fire artillery drill by rival South Korea Monday amid heightened tension on the peninsula during a delicate transition of power in the impoverished North.

  The exercise, involving the use of mortars, some 5,000 rounds of ammunition and attack helicopters, took place near a disputed sea border off the west coast and near a South Korean island bombarded by the North after a similar drill in 2010.

  South Korea said the drill, the second of its kind in the area this year, was routine and had passed without incident.

  " The exercise took place normally according to plan. North Korea maintained a higher level of response posture than normal," the South's Yonhap news agency quoted a military official as saying.

  The North's new young leader, Kim Jong-un, has taken a militaristic line in what analysts say is clearly an attempt to woo the backing of the powerful army as he tries to cement his grip on power as the third generation of the Kim dynasty.

  Pyongyang had threatened " merciless retaliatory strikes" if the South violated its territorial waters during the exercise.

  In its warning, North Korea said the South " should not forget" its shelling on the southern island of Yeonpyeong in November 2010, in which four people including two civilians were killed.

  The attack on the island was the first on civilians since the end of the 1950-53 Korean War. The North at the time said the South's military drill near the disputed maritime border triggered the bombardment.

  The two sides are technically still at war having signed only a truce, not a peace treaty, to end the 1950-53 conflict.

  North Korea, angered by what it says was Seoul's disrespectful response to leader Kim Jong-il's death in December, has unleashed a wave vitriol against its neighbour and vowed not to deal with the conservative government in Seoul.

  North Korea's ruling Workers' Party is expected to formalise Kim's rule at a special conference in April.

  Since his father's death, Kim has assumed the title of " supreme commander" and has focused on shoring up support from the military. Analysts say Kim, who is believed to be in his late 20s, now needs the party's backing to keep North Korea stable and to expand his power base.

  The conference could confer key party posts on the young Kim, such as a general secretary and chairman of the Central Military Commission, experts say.

  Moon Chung-in of Yonsei University said the party had been resuscitated in the later years of Kim Jong-il's leadership.

  " The party now has more power and influence," he said. " There is speculation that under Kim Jong-un there will be a more normalised pattern of governance around the party."

  Beijing, the North's main ally and benefactor, has endorsed the succession process, while Seoul and Washington have stated they wish only for a smooth a transition of power. Regional powers are pushing for dialogue.

  Washington hopes to clarify whether Pyongyang's new leadership is willing to curb its nuclear program when U.S. and North Korean officials meet in Beijing this week.

  Analysts expect little progress at Thursday's meeting, the third between the two sides in the last eight months. They say the North will also likely seek food aid.

By Tricia Wright

  LONDON (Reuters) - Britain's top shares rose on Monday, boosted by miners after policy easing by China, and supported by optimism over the prospects for Greece, as investors awaited confirmation of an improving outlook for the global economy.

  Miners advanced after top metals consumer China cut the amount of cash banks must hold in their reserves, bolstering lending capacity as the world's second-biggest economy faces a fifth successive quarter of slowing growth.

  Much of the newly available credit was seen financing infrastructure and capital investment, so fuelling demand for basic resources.

  Britain's benchmark FTSE-100 share index was up 46.76 points, or 0.8 percent, at 5,951.83 by 0955 GMT. The index is at seven-month highs, albeit in light trade, with U.S. markets closed for a holiday.

  While uncertainty over Greece and its battle to secure a second bailout remained, the overall view was that a deal was priced into the market and should a decision be postponed beyond February 20, when euro zone finance ministers meet, investors would take this in their stride.

  " The market's become fairly used to delays. It's dragged on for long enough now," Manoj Ladwa, senior trader at ETX Capital, said.

  The focus looks set to shift onto the economic picture in the wake of recent upbeat U.S. releases, with more positive data seen likely to further fuel a near 7 percent rally on the FTSE-100 so far in 2012.

  Big releases this week include Germany's Ifo business climate index, and U.S. housing market data.

  " Greece seems to be a done deal and is pretty much priced in to this market," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.

  " Attention can then finally get back on whether the pick-up in American activity is sustainable or whether the Chinese slow-down is worse than we hope."

  Energy stocks rose as supply concerns hoisted Brent crude above $121 a barrel, after Iran halted exports to British and French companies ahead of a European Union embargo.

  BP spearheaded the sector's advance, up 2.1 percent after a minority partner in the well which caused the largest offshore oil spill in U.S. history agreed the first government settlement involving the doomed Macondo well.

  Banks saw some gains, mirroring strength on the wider market, although some brokers were cautious ahead of earnings news later in the week.

  Nomura repeated its " reduce" rating on both Royal Bank of Scotland and Lloyds Banking Group, due to report full-year results on Thursday and Friday respectively, arguing the shares are trading at the top end of their valuation ranges.

  RBS added 2.4 percent while Lloyds was 2.2 percent firmer.

BEIJING, Feb 20 (Reuters) - Iran has reached an agreement with China's state oil traders for 2012 crude oil supply contracts, with shipments supplied to Unipec to be reduced from 2011, while volumes to Zhuhai Zhenrong Corp will remain unchanged from a year ago, trade sources said on Monday.

  " Zhenrong volumes will be the same but there will be some cuts to the Unipec side," said a trading source with direct knowledge of the deals.

  He declined to give more details on the reduction.

  A second source also confirmed that contract volumes to Zhenrong would be unchanged from year ago, while senior industry officials have previously said that Sinopec Corp, which imports via Unipec, would reduce 2012 volumes.

  Zhenrong bought around 240,000 barrels per day (bpd) from Iran last year, while Unipec bought roughly 260,000 bpd in 2011. (Reporting by Chen Aizhu Editing by Jacqueline Wong)

SHANGHAI, Feb 17 (Reuters) - The People's Bank of China (PBOC) conducted a net drain of 9 billion yuan ($1.43 billion) from the banking system this week, according to Reuters calculations.

  The PBOC has injected 73 billion yuan so far this year. Last year, it injected a net 1.907 trillion yuan into the market through its open market operations, which was largely offset by increases in banks' required reserves.

  For a table on the PBOC's open market operations in 2011, click:

  For a factbox on changes in benchmark interest rates and required reserve ratios, click:

  Following is a summary of the PBOC's weekly open market operations this year (in billions of yuan):

  Week Bills Repos Bills Repos Net drain(-) starting matured matured issued issued or injection(+) Feb 13 7 0 0 16 - 9 Feb 6 2 0 0 46 -44

  Jan 30 1 0 0 352* -351 Jan 16 1 352* 0 0 +353 Jan 9 8 65 0 0 + 73 Jan 2 1 50 0 0 + 51 ------------------------------------------------------- TOTAL + 73 * Including maturing of 352 billion yuan reverse repos

  Following is a summary for the fourth quarter of 2011 (in billions of yuan):

  Dec 26 3 10 4 0 + 9 Dec 19 2 15 27 0 - 10 Dec 12 3 10 41 45 - 73 Dec 5 5 30 56 80 -101

  Nov 28 2 0 16 10 - 24 Nov 21 5 48 16 15 + 22 Nov 14 17 39 58 0 - 2 Nov 7 39 70 12 30 + 67

  Oct 31 52 55 11 0 + 96 Oct 24 41 60 20 100 - 19 Oct 17 49 50 31 90 - 22 Oct 10 98 189 37 120 +130 ------------------------------------------------------- TOTAL + 73

  Note: Reuters calculations of maturing bills and repos count any debt maturing on the weekend as maturing the following week, as that is when banks receive the cash. ($1 = 6.3016 Chinese yuan) (Reporting by Chen Yixin and Jacqueline Wong)

* KOSPI closes up 1.3 pct, rallies for seventh wk

  * Samsung Electronics hits all-time high

  * Heaviest daily volume in 2-1/2 years

  * Market seen on slow climb towards 2,100

  By Joonhee Yu

  SEOUL, Feb 17 (Reuters) - South Korea's benchmark KOSPI index closed up 1.3 percent on the busiest trading day in more than 2-1/2 years to mark a seventh consecutive week of gains as robust U.S. economic data and hopes for a Greek bailout prompted foreign investors to resume buying.

  Exporters rallied after upbeat U.S. economic data pointed to further signs of resilience and steady recovery in the world's largest economy and a major destination for South Korean exports.

  " The rally was focused on large caps today, especially car makers and technology companies since they include many of South Korea's biggest exporters that would obviously derive the most benefit from the prospect of a recovery in the U.S. economy," said Korea Investment & Securities analyst Kim Chul-joong.

  KIA Motors Corp, the eighth best-selling automobile brand in the United States, soared 4.35 percent, while LG Display, a key supplier of LCD panels for Apple Inc's iPhone and iPad devices, gained 3.73 percent.

  Samsung Electronics Co Ltd, which accounts for 10 percent of the KOSPI's total market capitalisation, climbed 3.61 percent to an all-time closing high of 1,176,000 won.

  The Korea Composite Stock Price Index (KOSPI) closed up 1.3 percent at 2,023.47, easing back slightly from a six-month intraday high of 2,031.40 earlier in the session.

  " U.S. data and easing Greek worries helped reinvigorate foreign buying and the liquidity abundance is still providing plenty of room for upside," said Tong Yang Securities analyst Cho Byung-hun.

  Offshore investors, who snapped an eight-day buying streak Thursday, bought a net 258.8 billion won ($228.6 million) worth of shares.

  Programme trading lent support, with a net 215 billion won worth of shares bought via computerised bids on arbitrage and non-arbitrage deals.

  The 50-day moving average of the benchmark index is now at 1,904.55 points, inching towards the coveted " golden cross" as it steadily closes the gap with the 200-day moving average of 1,941.99.

  Brokerage firms bounced back from steep declines in the previous session amid hopes that Greece would finally be able to convince its international lenders and secure a crucial second bailout package after setting out on extra budget cuts Thursday.

  Woori Investment & Securities Co Ltd was the star performer among sector peers, soaring 5.2 percent. Daewoo Securities Co Ltd followed close behind with a gain of 5.04 percent.

  Woori Finance Holdings Co Ltd rose 3.36 percent after reporting a more than three-fold growth in profit for last year, with analysts citing improved financial stability after Woori cleared a large chunk of non-performing loans off of its books at low cost.

  Military aircraft manufacturer Korea Aerospace Industries Ltd tumbled 5.8 percent after losing a bid for a $1 billion Israeli aircraft tender.

  A total 724.6 million shares exchanged hands on Friday, the heaviest session in more than 2-1/2 years. Winners outnumbered decliners 529 to 310.

  The KOSPI 200 index rose 1.5 percent, while the junior, tech-heavy KOSDAQ gained 0.9 percent.

  The ongoing liquidity surge is expected to propel the benchmark KOSPI beyond the 2,100 threshold, but analysts say it will be a gradual, stop-and-go process with adjustments seen in the early part of next week.

  " Euro zone finance ministers are due to meet on Monday to discuss a Greek bailout, but the market has become desensitised to the issue, and with a lack of major data releases early next week, we may see a period of adjustment before U.S. housing data is released on Friday," said Cho. " The KOSPI has yet to fully recover gains after the global stock market rout in August, with the underlying fears of financial contagion that triggered the crash now very much alleviated, the 2,100 plateau appears very reachable."

  The benchmark index has rallied 10.83 percent since the turn of the year on a liquidity-driven rally fuelled by the European Central Bank's massive injection of cheap loans, as well as a string of robust economic indicators out of the United States.

  Move on day +1.3 percent

  12-month high 2,231.47 27 April 2011

  12-month low 1,644.11 26 Sept 2011

  Change on yr +10.83 percent

  All-time high 2,231.47 27 April 2011

  All-time low 93.10 6 January 1981 ($1 = 1131.950 Korean won) (Editing by Chris Lewis)

* Greece hopes to secure bailout on Monday

  * Gold could test higher after failing to breach $1,700/oz (Updates prices adds comments)

  By Rujun Shen

  SINGAPORE, Feb 17 (Reuters) - Gold prices rose on Friday as optimism that Greece may soon secure an urgently needed bailout buoyed financial markets and helped bullion recover from a one-week low hit in the previous session.

  Gold, on course for a weekly rise of 0.8 percent, has moved in the range between $1,700 and $1,760 since the beginning of the month, closely tracking the progress and setbacks in Greece's struggle to obtain a 130-billion euro bailout.

  Hopes that Greece has finally done enough to secure a second bailout after Athens set out extra budget savings demanded by its international lenders helped riskier assets rally in the last trading day of the week.

  Technical signals may have turned upbeat for gold, said Nick Trevethan, senior commodity strategist at ANZ in Singapore.

  " We're at the point where we have tried the downside three or four times in the past two weeks and failed. The frustration with failure to breach the $1,700-$1,710 level might put the focus back on resistance," he said.

  Lofty oil prices on concerns about supply disruption from Iran are also expected to underpin sentiment in gold, he added.

  Spot gold rose 0.2 percent to $1,732.39 an ounce by 0632 GMT. Gold touched a low of $1,705.09 in the previous session, lowest since Feb. 10.

  U.S. gold gained 0.3 percent to $1,734.30.

  The data from the World Gold Council, showing that global gold demand in 2011 hit a 14-year high on investment, China buying and central bank purchases, also supported gold.

 

  Gold, traditionally a safe-haven asset, has been tracking riskier assets in the past few months as the turmoil caused by the euro zone debt crisis forces investors to sell off their gold positions to cover losses elsewhere.

  Though there is increased optimism on Greece's bailout deal, investors remained cautious as the euro zone is hardly out of the woods and its debt crisis can continue to disrupt the global financial markets.

  " This week is the first week in a long run that we have such tight range," said a Tokyo-based trader, referring to the narrow range of around $32 for spot gold.

  " People, especially in Asia have adopted the wait-and-see attitude. Until Europe decides what to do with Greece things will be quiet."

  But he said the longer-term outlook for gold will stay rosy as the U.S. Federal Reserve has pledged to keep interest rates low until at least late 2014, boosting inflation outlook and supporting bullion.

  Spot silver edged up 0.2 percent to $33.51, off a three-week low of $32.64 hit in the previous session. The metal remained the top performer of the complex with a 21 percent year-to-day climb.

  Spot platinum gained 0.6 percent to $1,629.74, headed for a weekly decline of 1.4 percent, after six straight weeks of gains.

  Spot palladium was flat at $690.97, but on course for its biggest one-week drop in six weeks.

 

  Precious metals prices 0632 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1732.39 3.99 +0.23 10.78 Spot Silver 33.51 0.05 +0.15 21.02 Spot Platinum 1629.74 10.25 +0.63 16.99 Spot Palladium 690.97 -0.46 -0.07 5.90 COMEX GOLD APR2 1734.30 5.90 +0.34 10.69 11780 COMEX SILVER MAR2 33.54 0.16 +0.49 20.13 2864 Euro/Dollar 1.3123 Dollar/Yen 79.12 COMEX gold and silver contracts show the most active months (Editing by Himani Sarkar)

LONDON, Feb 17 (Reuters) - European stock index futures pointed to a higher open for equities on Friday on optimism that Greece had moved closer to secure a bailout to avoid a messy debt default and as recent data showed the pace of U.S. economic recovery had improved.

  At 0702 GMT, futures for Euro STOXX 50, for Germany's DAX and for France's CAC were up 0.7-0.9 percent.

* Concerns over Greek bailout hurts euro, stocks

  * China set to overtake India as biggest gold consumer

  * Cenbank gold purchases hit highest in 40 years

  * Coming up: U.S. weekly jobless claims 1330 GMT (Updates prices)

  By Jan Harvey

  LONDON, Feb 16 (Reuters) - Gold fell on Thursday, pressured by the euro's slide to three-week lows versus the dollar after European officials postponed a decision on a bailout package for Greece, which fuelled fears the heavily indebted nation could face a chaotic default.

  Spot gold was down 0.7 percent at $1,715.59 an ounce at 1232 GMT, while U.S. gold futures for February delivery were down $10.70 an ounce at $1,717.40.

  It remains up 10 percent in the year to date but is well off the record $1,920.30 it hit last year at a time that bad news from the euro zone tended to have a positive effect on gold, which some saw as a haven from turmoil in other markets.

  " Gold stopped being a safe-haven store of value some time around August or September, when you had a huge spike in prices, followed by a collapse," said Natixis analyst Nic Brown. " Gold price volatility was as high as some of the other financial assets you might have been trying to get away from.

  " Given that it is (now) trading like another commodity, the correlation with the dollar is one of the key determinants."

  The euro slid 0.7 percent against the U.S. currency after euro zone finance ministers on Wednesday failed to reach agreement on a 130 billion euro ($169.9 billion) bailout package for Athens, delaying a decision on the matter until ministers meet on Monday.

  Some ministers are unconvinced that all of Greece's political leaders are fully behind the painful and unpopular austerity reforms needed to release the package.

  A strong dollar tends to weigh on gold prices by making dollar-priced commodities more expensive for other currency holders and reduces the metal's appeal as an alternative asset.

  European stocks also turned lower, while risk aversion as measured by the implied volatility on Europe's top stocks jumped to its highest since mid-January. Safe-haven German bonds rose.

 

  GOLD DEMAND RISES AGAIN

  Gold demand struck 14-year highs in 2011, driven by record investment, buying in China and central bank purchases, which hit their highest in at least 40 years, according to an industry report from the World Gold Council on Thursday.

  Major consumer India's gold imports slumped 44 percent in the last quarter of 2011, however, as record-high local prices depressed buying interest, and shipments are likely to remain at similar levels this year.

  China could overtake India this year as the world's top consumer of gold, the report said. " (We are) sticking our neck out a bit and suggesting that 2012 will be the first year that China does exceed India in terms of tonnage demand," WGC managing director for investment, Marcus Grubb, told Reuters.

  Among other precious metals, silver was down 0.8 percent at $33.09 an ounce, while spot platinum was down 1.7 percent at $1,604.49 an ounce and spot palladium was down 0.5 percent at $676.98 an ounce.

  Impala Platinum, the world's second-largest platinum miner, expects the white metal to trade at between $1,450 to $1,800 ounce this year, the company's marketing executive Derek Engelbrecht said on Thursday.

  A strike at Implats' Rustenburg mine has been a key factor lifting platinum prices 15 percent this year, making it one of the best-performing precious metals. The company said it did not know when the mine would be back to full output.

  Thousands of protesting miners burned tyres and torched a police office near the Rustenburg mine on Thursday as the month-long strike turned violent.

  " The stoppage has been costing Implats circa 3,500 ounces of lost platinum production per day, according to the company," said HSBC analyst James Steel in a note.

  " Though a loss of this amount would likely go unnoticed in the larger gold market, the cumulative impact of lost production on the smaller and more finely balanced platinum market is sufficient to shave supply and help bolster prices, we believe." ($1 = 0.7654 euros) (editing by Jane Baird)

By Fredrik Dahl

  VIENNA (Reuters) - Iran, facing harsher sanctions targeting its economically vital oil exports, has told world powers it wants to resume long-frozen talks soon but left vague whether it is ready to address concerns about its nuclear activity, as they insist.

  Tehran made the offer in a letter to the EU's foreign policy chief obtained by Reuters on Thursday, a day after it trumpeted several advances in nuclear know-how and sent oil prices upward with suggestions of economic reprisal in what may have been moves to boost its leverage before any fresh negotiations.

  Iran's president vowed no retreat from its atomic path on Wednesday only for state television to announce the proposal to re-launch talks after a year's break - mixed signals making it difficult to divine what Tehran's intentions were.

  Iranian chief negotiator Saeed Jalili's letter said he would have " new initiatives" but did not spell them out. He made one separate reference to " Iran's nuclear issue," without saying whether Tehran was prepared to negotiate on it.

  His letter was a reply to one from Ashton in October in which she said the big powers could meet with Iran within weeks if it was ready to " engage seriously in meaningful discussions" tackling concerns about its nuclear quest.

  Jalili said he welcomed an earlier statement by Ashton on respecting Iran's right to the peaceful use of nuclear energy.

  " No doubt by committing to this approach, our talks for cooperation based on step-by-step principles and reciprocity on Iran's nuclear issue could be commenced," said the English-language letter, obtained by Reuters.

  " (A) constructive and positive attitude towards the Islamic Republic of Iran's new initiatives in this round of talks could open positive perspective for our negotiation," Jalili said.

  " Therefore...I propose to resume our talks in order to take fundamental steps for sustainable cooperation in the earliest possibility in a mutually agreed venue and time."

  Jalili added that dialogue should focus " on a spectrum of various issues which can provide ground for constructive and forward-looking cooperation."

  CLASHING AGENDAS

  His message resembled Iran's agenda in previous abortive talks, floating undefined ideas for security and trade cooperation while avoiding discussion of steps sought by world powers to guarantee that its nuclear programme is peaceful in nature and transparent for the U.N. atomic watchdog.

  A spokeswoman for Ashton confirmed receipt of the letter on Wednesday, saying she was evaluating it and would consult with the six powers on a response.

  The United States and its allies suspect Iran is seeking to develop nuclear weapons capability under cover of a declared civilian nuclear energy programme, and believe Tehran has sought to buy time with talks about unrelated matters.

  Iran says it is enriching uranium only for electricity for a rapidly growing population.

  Ashton handles the Iran file on behalf of six world powers - the United States, Russia, China, Germany, France and Britain.

  Negotiations have been frozen since a fruitless meeting in Istanbul in January 2011.

  Tensions have soared since the U.N. nuclear inspectors issued a report in November detailing intelligence reports indicating that Iran has worked on designing a nuclear weapon.

  Iran's ambassador to Moscow, Seyed Mahmoud Reza Sajjadi, told a news conference that Tehran would accept " no preliminary conditions" for progress in any further talks.

  He was responding to a question about a Russian suggestion that, as a first step toward a resolution of the standoff, Iran could take measures including freezing the number of centrifuges for uranium enrichment at current levels in return for assurances it would face no additional sanctions.

  DEFIANT ON OIL SANCTIONS

  Sajjadi also shrugged off Iran's shrinking oil trade with countries punishing Tehran over its nuclear programme, asserting that Iran - which has been heavily dependent on imported fuel - would benefit from any ban on its crude exports by boosting domestic production of refined fuels.

  " Iranians will show the whole world how they can use an embargo as an opportunity," he said.

  Tehran's determination to pursue its nuclear programme has shown no sign of wavering despite Western sanctions that are inflicting increasing damage on its oil-based economy.

  To underline that it could withstand whatever punishment the West imposes on it, Iran proclaimed three nuclear achievements on Wednesday.

  They consisted of a " new generation" of centrifuge machine able to refine uranium three times as fast as the outdated, erratic model it is using now, a major increase in the number of centrifuges available for enrichment, and loading a research reactor with Iran's first batch of domestically produced fuel.

  If Iran succeeded in introducing modern centrifuges for production, it could significantly shorten the time needed to stockpile enriched uranium, which can generate electricity or, if refined much more, produce nuclear explosions.

  But it remains unclear whether Tehran, under increasingly strict trade sanctions, has the means and components to make the more sophisticated machines in industrial quantity.

  Western diplomats and analysts said the Iranian announcements were largely hype and bluff, noting that Iran had been trying to develop several newer versions of centrifuges for years without introducing them into production

  MUTUAL THREATS RAISE FEARS OF WAR

  The United States and Israel have not ruled out military action against Iran if diplomacy and sanctions fail.

  Iran has threatened retaliation for any attack or effective ban on its oil exports, suggesting it could seal off the main Gulf export shipping channel, the Strait of Hormuz, used by a third of the world's crude oil tankers.

  Iran's Oil Ministry denied a state media report that it had cut off oil exports to six EU states, while leaving open the option as a pre-emptive strike against an EU plan to launch an embargo on Iranian oil on July 1.

  Whether erroneous or just premature, the media report caused a spike in oil prices to their highest level since August.

  The Islamic Republic is the world's No. 5 oil exporter, with 2.6 million barrels going abroad daily, about a fifth of it to EU countries.

  Western sanctions are spreading to block Iran's oil exports and central bank financing of trade, and Tehran has resorted to barter to import staples like rice, cooking oil and tea, commodities traders say.

  The Obama administration is also pressing the European Union and SWIFT, the global organisation that facilitates most of the world's cross-border payments, to expel Iranian banks from its network, a new step in the push to deprive Iran of funds, a U.S. official said on Wednesday.

  Expelling Iranian banks from the Belgium-based Society for Worldwide Interbank Financial Telecommunication would cut off one of Iran's few remaining avenues to do business abroad.

  European banking regulators may meet SWIFT's board on Thursday to discuss the issue, two sources familiar with the matter said. SWIFT has said previously it is working to resolve the issue but is just a messaging system for its 10,000 users.

  (Additional reporting by Steve Gutterman in Moscow, Dmitry Zhdannikov and Adrian Croft in London, Rachelle Younglai and Roberta Rampton in Washington Writing by Mark Heinrich Editing by Jon Boyle)