* US equities rise weighs down on gold market
* U.S. housing starts, permits unexpectedly rise in Feb
* SPDR gold ETF, Julius Baer gold ETF hit record levels
By Frank Tang and Paul Lauener
NEW YORK/LONDON, March 17 (Reuters) - Gold fell on Tuesday as a rally on Wall Street and a surprise surge in U.S. housing starts reduced the precious metal's appeal as a safe haven investment.
However, fresh flows into exchange-traded funds showed investors' appetite for bullion remained sharp and that should prevent further declines, traders said.
Spot gold was at $916.00 an ounce at 2:19 p.m. EDT (1819 GMT), down 0.7 percent from its last quote $922.55 in New York late Monday.
U.S. gold futures for April delivery settled down $5.20 at $916.80 an ounce on the COMEX division of the New York Mercantile Exchange.
Equity strength continued to push gold prices down. Stocks rose on an unexpected rebound of U.S. housing starts, with sentiment underpinned by hopes that banks may be seeing some stabilization.
The negative correlation between the S&P 500 and the gold price has risen to more than 70 percent in the last month, according to Reuters data, from around 30 percent in the last quarter of 2008.
"A lot of upward pressure to the market was driven by risk aversion," said BNP Paribas analyst Michael Widmer.
"There has been a bit of a rebound in the equity markets, and financial stocks are performing a bit better in the United States," he said.
Fears over economic and financial instability have boosted inflows into gold and bullion-backed exchange-traded funds since the beginning of the year. Latest data suggests that trend is picking up again after running out of steam last week.
RECORD GOLD ETF HOLDINGS
New York's SPDR Gold Trust said its holdings hit a record 1,069.05 tonnes on Monday, while in Europe, holdings of Julius Baer's gold-backed ETF rose 20 percent in the week to March 17, also to a record.
Higher prices, sustained in part by strong buying by ETFs, have crushed the jewelry market, particularly in top consumer India.
"The (SPDR) fund is buying gold at the expense of the jewelry market, which is seeing reduced buying activity," said Fairfax analyst John Meyer.
The decline in jewelry buying, which typically accounts for two-thirds of global demand, is weighing down gold prices.
Traders, however, expect strong investment interest should continue to bolster the yellow metal.
"There is still interest in investing gold. People are in the mind-set to acquire gold rather than dispose of it right now," said FC Stone commodities broker George Nickas.
The market is looking ahead to the outcome of a two-day U.S. Federal Reserve meeting ending on Wednesday.
Among other precious metals, spot silver at $12.69 an ounce, down 1.6 percent from its Monday finish of $12.89.
Platinum at $1,043.00 an ounce, down 1.1 percent from its previous close of $1,055, while at $194.00 an ounce, down 1.5 percent from its late Monday New York quote $201.
Both metals are, unlike gold, primarily industrial in use and have suffered from a slowdown in economic activity.