By Nicholas Larkin Dec. 17 (Bloomberg) -- Gold fell from a two-month high in London, as a seven-day rally spurred some investors to sell and as the dollar pared some of its earlier losses, reducing the precious metal’s appeal as an alternative investment. The Federal Reserve yesterday reduced rates to a “target range” of zero to 0.25 percent from 1 percent, and said it will expand purchases of debt securities to fight the recession, sending the dollar to an 11-week low against the euro. Saudi Arabia’s oil minister said OPEC will trim production by 2 million barrels a day at the start of next year. “There’s a bit of profit-taking and the dollar is recovering from some of its earlier weakness,” James Moore, an analyst at TheBullionDesk.com, said by phone today. “Overall, sentiment is still to the upside.” Gold for immediate delivery lost $4.96, or 0.6 percent, to $853.14 an ounce by 1:01 p.m. in London. The commodity traded at about $840 an ounce before yesterday’s rate decision. February futures added $11.20, or 1.3 percent, to $853.90 in electronic trading on the Comex division of the New York Mercantile Exchange. The metal rose to $853.75 in the morning “fixing” in London used by some mining companies to sell production, from $838.25 at the afternoon fixing yesterday. The Fed’s target interest rate is now the lowest among the world’s industrialized nations. The central bank reiterated plans to buy agency debt and mortgage-backed securities and said it will study buying Treasuries, a policy known as quantitative easing. Weak Dollar The dollar has slipped 9.6 percent against the euro the past eight days and gold has gained 13 percent in the period. The metal, which reached a record $1,032.70 in March, is little changed this year. Gold typically moves in the opposite direction to the U.S. currency. Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, expanded by 5.2 percent to 769.21 metric tons as of yesterday. The fund was at a record 770.64 tons Oct. 13. Bullion held in exchange-traded funds managed by ETF Securities Ltd. rose to 1.749 million ounces, from 1.739 million ounces. Some investors buy gold as a hedge against inflation. “With interest rate yields now at zero and investors still looking to park their money into ‘safe-haven’ assets, as shown by the 3-tonne increase in SPDR holding, we would look for gold to edge higher in the coming sessions and remain buoyant into 2009,” Moore wrote today in a note. OPEC, at its meeting today, is preparing to make a record production cut as the group tries to halt a five-month slide in prices. Crude gained as much as 4.4 percent to $45.50 a barrel in New York and was last little changed at $43.22. “Market expectations are for an approximate 2 million barrels a day output reduction,” Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, wrote in a note today. “A deeper-than-expected OPEC cut could mean an oil price recovery, which might spur further precious metals gains today.” Silver Slips Among other metals for immediate delivery in London, silver declined 2.5 percent to $10.955 an ounce. Platinum lost $2, or 0.2 percent, to $861 an ounce, and palladium was 1.1 percent lower at $178. Platinum miners in South Africa, accounting for almost 80 percent of world supply, are reducing production after prices of the metal fell, according to David Brown, the chief executive officer of Impala Platinum Holdings Ltd. Brown said Impala is already reducing capital expenditure and “looking closely” at production, while Aquarius Platinum Ltd. has shut its Everest mine for at least six months. Anglo Platinum Ltd. today said 2009 output will match 2008 production of about 2.4 million ounces without saying whether that represents a cut in planned output. “The car manufacturers continue to put pressure on the price of platinum and if mines shut down because of low prices, then prices could go higher again,” Nabavi said. To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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