LONDON, Dec 29: Gold extended gains in Europe on Thursday as speculators continued to ride upbeat sentiment, dealers said. Gold has surged more than 20 per cent this year as investors have diversified into the metal from other assets amid worries about inflation and economic growth, and the market is seen moving higher in 2006.

Spot gold was at $517.00/ $517.75 an ounce by 1110 GMT, above the $513.70/514.40 last recorded in New York late on Wednesday, when it rose more than $6.

Gold had spiked to a near-25-year high of $540.90 this month.

The bullish tone looks set to continue as large scale hedge funds and speculators window dress their positions for year-end, said James Moore, analyst at TheBulliondesk.com.

Any drop to around $505-$513 would attract more buyers and support prices, while players might avoid buying at about $520-$525 in the near term, he said.

Analysts said that a rare move in US Treasuries this week also encouraged investors as doubts about the future health of the US economy mounted.

Benchmark 10-year US Treasury yields fell below two-year yields for the first time in five years this week.—Reuters