The increasing fear of a war with Iraq pushed the price of gold to a six-year high in London on Monday, as the US dollar lost ground.

The dollar hit a three-year low against the British pound in London trade and hovered around recent lows against the euro and the Swiss franc.

Investors were rattled by press reports that the United States and the United Kingdom were deploying more troops to the Gulf region.

Tension in the markets was also turned up a notch after a speech by Iraqi leader Saddam Hussein.

He said his country was ready for possible military attack and accused UN weapons inspectors of carrying out "pure intelligence work".

Gold hits high

Gold, seen as a traditional safe-haven in times of international tension, hit its highest level since March 1997.

The price of gold was supported by higher prices for oil, which is often referred to as a "war commodity".

At the close of London trading, the US dollar was at $1.0467 to the euro, nearly half a cent above last week's three-year low.

Against the traditionally safe Swiss franc, the dollar was down half a percentage point at 1.3913 francs, but above last week's four-year low of 1.3805.

'Action' approaching

Gold hit a high of $356.25 an ounce, brushing past the previous high of $353.75, and was fixed in London trade at $356.10. Bullion is now 28% higher than it was a year ago.

Brent crude for February delivery was trading at $30.55 a barrel, after hitting a 15-month high of $31.02 a week ago.

US crude was trading at $32.20 a barrel, just off a two-year high of $33.65 it reached on 30 December.

Analysts believe investors are bracing themselves for a military conflict in the Gulf.

"The geopolitical concerns which continue to intensify will dampen dollar sentiment further," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez.

"Markets believe we are approaching some sort of action."