Oct. 9 (Bloomberg) -- Gold fell for the first time this week in London as investors sought to raise cash on speculation that a coordinated cut in lending rates by central banks will fail to restrain interbank borrowing costs.

South Korea, Hong Kong and Taiwan cut key loan rates today, joining similar moves by the Federal Reserve and five other central banks yesterday. The cost of borrowing in dollars overnight in London soared for a third day before yesterday's coordinated move.

Gold for immediate delivery fell $16.92, or 1.9 percent, to $890.70 an ounce as of 9:47 a.m. in London. The metal advanced 8.6 percent in the previous three trading sessions. Futures for December delivery dropped $13.70, or 1.5 percent, to $892.80 an ounce on the Comex division of the New York Mercantile Exchange.

``The coordinated central bank effort seems to have failed to quell money market rates so cash is still king and may prompt further bouts of liquidation across commodities,'' said James Moore, an analyst at TheBullionDesk.com in London. ``But certainly across the quarter we'll be up and I wouldn't be surprised to see a challenge of $1,000.''

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, climbed to a record 763.9 metric tons, equal to about four months of global production. The new total is within 1.3 tons of Japan's reserves, the world's seventh-largest gold holding.

The cost of borrowing gold dropped yesterday. The 12-month lease rate fell to 2.42 percent from 2.48 percent the day before, which was the highest since May 2001. The rate is derived by subtracting the gold forward offered rate from the London Interbank Offered Rate.

Lease rates are fluctuating because of concern that central banks are reluctant to lend gold given the current market turmoil, according to UBS AG.

Among other precious metals for immediate delivery, platinum for immediate delivery climbed $5, or 0.5 percent, to $1,007.50 an ounce in London. Silver dropped 16 cents, or 1.4 percent, to $11.58 an ounce. Palladium rallied $2.50, or 1.3 percent, to $201 an ounce.

To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

Last Updated: October 9, 2008 05:01 EDT