Gold bounced back on Wednesday after suffering its worst setback in 18 months, as risk appetite retreated on Japan's debt rating downgrade, while oil and metals were supported by hopes the U.S. would inject fresh stimulus to boost the economy.

Asian shares fell and the precious metal jumped more than 1 percent after Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3, blaming a debt build-up since the 2009 global recession and the revolving-door leadership that has hampered effective economic strategies.

A sharp drop in gold prices from an all-time high in the previous session triggered strong buying interest as Asia opened business, sending spot gold up 1.3 percent to an intraday high of $1,853.19 an ounce.

One selloff doesn't make a trend and if anything, people are buying more in reaction to say that nothing has really changed, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

Let us see what Bernanke has to say and the market wants to see what the U.S. is doing in terms of stimulus.

The rally in bullion was driven by more dismal U.S. economic data, which raised expectations that Federal Reserve Chairman Ben Bernanke will use his speech on Friday at a central bankers' conference in Jackson Hole, Wyoming, to signal a fresh monetary offensive to fend off a recession.

Last year, Bernanke used the occasion to prepare the ground for the Fed's second round of quantitative easing, a $600 billion bond-buying program designed to pump cash and confidence into financial markets that became known as QE2.

PHYSICAL GOLD BUYING

Physical bullion dealers were busy with a flood of orders from countries including China, Indonesia and Thailand following Tuesday's selloff.

Everyone is hunting for physical gold now, said a Singapore-based bullion dealer, adding that physical gold buying sustained even when prices hit record highs over the past few sessions.

At 1:58 a.m. EDT, spot gold up 0.6 percent to $1,840.11 an ounce and U.S. gold trimmed early losses to $1,844.

In the oil market, Brent crude prices steadied above $109 as investors pinned their hopes on the U.S. Fed to inject stimulus measures.

Brent crude was down 11 cents, but was holding above $109 a barrel, while U.S. October crude dipped 18 cents to $85.26 a barrel.

Reduced crude stockpiles in the U.S., uncertainty over when the conflict in Libya will end and a force majeure by Royal Dutch Shell (RDSa.L) on Bonny Light sweet crude were also supporting sentiment.

In Libya, rebels sacked Muammar Gaddafi's Tripoli bastion, seizing weapons and smashing symbols of a 42-year dictatorship.

But Gaddafi said on Wednesday his withdrawal from his Bab al-Aziziya headquarters was a tactical move after the compound was leveled by 64 NATO air strikes.

Libya's former top oil official Shokri Ghamen had said on Monday that it would take as long as 18 months for Libya's oil flow to reach the pre-war level of around 1.6 million barrels per day (bpd), nearly 2 percent of global supply.

LME copper was little changed, supported by arbitrage trading and expectations of more monetary stimulus from the U.S.

Three-month copper on the London Metal Exchange slipped 0.2 percent to $8,835.15 a tonne, after rising 1.5 percent in the last session.

The most-active November copper contract on the Shanghai Futures Exchange edged down 0.3 percent to 66,450 yuan per tonne, after rising 1.1 percent in the last session.

U.S. wheat fell 0.3 percent, snapping a three-day rising streak, while corn dipped after climbing to contract highs in the last session as investors booked profit amid the Japan rating downgrade.

Chicago Board of Trade actively-traded December wheat fell 0.3 percent to $7.82- a bushel, after touching $7.86-1/2 a bushel in the last session, the highest since June 16.

December corn also fell 0.2 percent to $7.41- a bushel from a contract high of $7.44 a bushel on Tuesday and November soy dipped 0.2 percent to $13.94- a bushel.

Wheat and corn futures remain underpinned by harsh weather in the United States which is threatening to curb production.

Federal reserve Gold prices Thailand Japan