* Price set for 0.5 pct weekly fall * ETF holdings steady near record; bullish options bets up * Palladium holds near three-month highs By Amanda Cooper LONDON, Dec 8 (Reuters) - Gold eased on Thursday ahead of a widely expected rate cut from the European Central Bank, while bullion holdings in exchange-traded funds held near record highs and the options market showed rising bets on the price hitting $1,800 by year-end. The ECB is expected to deliver a cut to the benchmark rate, currently at 1.25 percent and unveil a series of measures to improve access to cash in the financial markets, particularly whether it plans to increase its purchases of bonds of the more indebted euro zone states. European Union leaders also start a crucial summit on Friday that investors hope will deliver a comprehensive solution to the region's debt crisis, which now threatens the top-notch credit ratings of Germany and France. Although the gold price has struggled to make upward progress this week, largely a function of a preference among investors to hold U.S. dollars, ETF holdings of metal are near record highs and a sharp increase in bullish options plays reflects a desire to hold bullion right now. Spot gold was last bid at $1,738.59 an ounce by 1115 GMT, down 0.2 percent on the day and set for a 0.5 percent decline this week, yet this positive momentum could be doused if this week's summit does not deliver a euro-supportive solution. "If there is a positive outcome, if the policies coming forward are sensible and doable, I suspect we'll see some strengthening in the euro and weakness in the U.S. dollar and, equally ... that would be probably supportive of gold on the basis that the dollar would weaken," Ross Norman, director of bullion broker Sharps Pixley said. "If there is a clear lack of consensus coming out of the meeting, I suspect there would be a quick move to safe-haven assets and I don't think gold will necessarily benefit." The U.S. dollar has acted as the safe-haven of choice, to the detriment of gold in the last couple of months, particularly as the cost of dollar liquidity has risen. HOPE FOR THE EURO Hopes for a definitive plan to tackle the two-year-old euro zone debt crisis were fading a day before the summit and expectations were dented further by pessimistic comments from a senior German official and new figures exposing deepening stress among Europe's banks. "A final solution out of Europe is highly unlikely," Jeremy Friesen, Commodity Strategist at Societe Generale in Hong Kong, said, but added that a total breakdown was also unlikely as central banks and finance ministries have shown the will to cooperate to fight the crisis which is threatening to split up the euro zone and sink the global economy into recession. "I don't expect Merkel or any hawkish decision-makers to squander this opportunity to really make reforms, now that they have come so far. I don't see them capitulating at this point." A disappointing result from the summit could undermine the euro and send gold prices lower, at least initially. ETF holdings of gold have risen to a record above 70 million ounces this week, while the options market shows a strong pick-up in call options, which give the holder the right but not the obligation to buy gold at a set price by a set date, at $1,800 an ounce. Calls at $1,800 an ounce have risen by more than 3,000 lots, or 3 million ounces, in the last week, indicating a growing belief that the price could be trading above this level by the end of the year. <0#GC+++> In other precious metals, silver was quoted up 0.2 percent at $32.55 an ounce, while platinum was last down 0.5 percent at $1,513.03 an ounce. Platinum is trading at its steepest discount to gold since Reuters began collecting data on the metal's price in 1985. The price of platinum, which is used principally in jewellery and vehicle catalytic converters, is now more than $200 below the price of gold, highlighting the concern among investors over the impact on the global economy from the euro zone debt crisis. Any jolt to consumer confidence can result in a drop in discretionary spending on luxury items such as jewellery or new cars, delivering a twin hit to platinum demand. The market is expected to show a surplus this year of around 195,000 ounces, in contrast with last year's deficit of 25,000 ounces, when demand oustripped supply, according to refiner Johnson Matthey in a recent report. Palladium was last down 1.0 percent on the day at $666.72 an ounce, having rallied sharply this week to its highest since September, when it hit one-year lows. "Palladium continued to outperform its sister metal, platinum," HSBC analyst James Steel said in a note "Market chatter revolved around supply tightness and Russian stockpile concerns. There have also been increases in fund purchases and option call buying recently, we believe," he said. (Reporting by Amanda Cooper; Editing by Alison Birrane)

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