Gold jumps 2 percent

By Jan Harvey

LONDON (Reuters) - Gold jumped 2 percent on Friday to a near three-week high as volatility on the currency markets drove investors to opt for buying bullion.

The precious metal reached new record highs in both sterling and euro terms.

Spot gold was at $873.30/874.90 an ounce at 1050 GMT (5:50 a.m. EST), against $855.55 late in New York on Thursday. It rose to an all-time high of 685.70 in euro terms, and a record 648.51 pounds when priced in sterling.

"Investors are getting out of currencies and getting into gold," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

The dollar strengthened to a six-week high against the euro, as investors worried about the outlook for the euro zone economy.

Key business surveys showed on Friday that euro zone services and manufacturing activity declined at a slightly slower pace in January, a touch better than forecasts, but remained deep in recessionary territory.

Investors are worried about the health of financial stocks in the euro zone.

While strength in the dollar against the euro tends to weigh on gold, which is often bought as a hedge against weakness in the U.S. currency, this correlation was trumped by interest in bullion as a safe haven.

"The relationship between gold and the U.S. dollar appears to be broken at present," said Fairfax analyst John Meyer. "Normally a stronger dollar pushes down gold."

"Clearly there is investment money flooding in due to the perceived security of gold," he said.

The other main external driver of gold, oil prices, softened on Friday, falling below $43 a barrel after a larger than expected rise in U.S. crude stocks, and with bearish economic data dampening hopes for a resurgence in demand.