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May 18 (Bloomberg) -- Gold rose to a one-week high on renewed speculation that the Federal Reserve will announce additional stimulus to boost the U.S. economy, increasing demand for the precious metal as an inflation hedge.

Bullion jumped 2.5 percent yesterday, the most since October, after a report showed that manufacturing in the Philadelphia region unexpectedly shrank in May, the first contraction in eight months. Before yesterday, gold was in a bear market, erasing this year’s gain, as Europe’s widening debt crisis sent investors to the safety of the dollar. The Fed has held U.S. borrowing costs at a record low since 2008 and bought $2.3 trillion in housing and government debt to spur growth during two rounds of so-called quantitative easing.

“Expectations of some form of easing have perked up the market,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview.

Gold futures for June delivery gained 1.1 percent to settle at $1,591.90 an ounce at 1:47 p.m. on the Comex in New York. Earlier, the price rose to $1,597.50, the highest since May 10. The metal is up 1.6 percent for the year, heading for a 12th straight annual gain.

Fed Chairman Ben S. Bernanke on April 25 said he was prepared to take further action to aid the economy if necessary.

Moody’s Investors Service lowered the credit ratings of 16 Spanish banks yesterday, and Fitch Ratings cut Greece’s credit rating on concern that the country may not be able to sustain euro membership.

‘Too Early’

“To see a return of gold reacting positively to macro stresses is indeed refreshing, but it is still far too early to make any firm conclusions from here that gold has indeed turned the corner,” Edel Tully, an analyst at UBS AG in London, wrote in a report today. “Follow-through buying will have to kick in to encourage investors to jump in.”

Silver futures for July delivery rose 2.5 percent to $28.715 an ounce on the Comex.

On the New York Mercantile Exchange, platinum futures for July delivery climbed 0.4 percent to $1,459.30 an ounce, rising for the second straight day. Palladium futures for June delivery fell 0.4 percent to $603.60 an ounce.

To contact the reporters for this story: Nicholas Larkin in London at; Debarati Roy in New York at

To contact the editor responsible for this story: Steve Stroth at

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