* Gold hits lowest since Sept 7 as S&P, commods tumble
* Bullion price breaks below 50-day moving average
* Deflation worry returns, optimism about Fed stimulus fades
(Updates throughout; changes byline, dateline, pvs LONDON) NEW YORK, Oct 23 (Reuters) - Gold fell 1 percent on Tuesday, tumbling below technical support and hovering just above $1,700 an ounce, pressured by economic worries that slammed equities and commodities and lifted the dollar. Bullion, a traditional inflation hedge, broke below its 50-day moving average as U.S. equities slid almost 2 percent on poor earnings from major multinationals led by DuPont Co. that fed fears of a global economic slowdown. Other commodities also fell broadly as economic uncertainty cut demand expectations. The TR/J CRB index fell more than 1 percent. Market watchers said the economy appeared to be slowing despite the latest program by the Federal Reserve to purchase mortgage-backed debt. ``It feels like deflation is now back in, and the quantitative easing is not going to help out the economy,'' said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien. The Fed is due to issue its latest policy statement on Wednesday. Most economists expect the U.S. central bank to refrain any additional easing ahead of the Nov. 6 U.S. election. Spot gold was down 1.1 percent at $1,708.84 an ounce U.S. COMEX gold futures for December delivery were down $16.20 an ounce at $1,710.20, with trading volume on track to finish in line with its 30-day average, preliminary Reuters data showed. On gold options, political uncertainty related to the U.S. election prompted investors to reduce bullish bets and guard against further losses, said independent COMEX gold options floor trader Jonathan Jossen. This month, gold hit a 2012 high at $1,795.69 after the Fed unveiled a third round of bond-buyback known as quantitative easing to stimulate growth. It has not broken above $1,800. In its last policy meeting in September, the Fed explicitly tied its $40 billion a month bond-buying to U.S. jobs growth. While some recent data have been encouraging, the jobless rate remains elevated at a relatively high 7.8 percent. Silver fell 1.7 percent to $31.84 an ounce.
PHYSICAL, INVESTMENT DEMAND EYED Signs of better physical demand should limit further losses, analysts said. In India, historically the world's largest bullion consumer, demand picked up as prices dipped ahead of a key festival season that is seen as an auspicious time to buy gold. Gold-backed exchange-traded funds, which issue securities backed by physical metal, saw inflows on Monday of around 112,223 ounces, with the bulk of those moving into the world's largest gold ETF the SPDR Gold Trust. Platinum group metals also fell sharply, tracking copper's heavy losses. Platinum was down 1.9 percent at $1,571.49 an ounce, while palladium dropped 4.1 percent to $594.50 an ounce after it broke below major technical support at its 100-day moving average. Prices at 12:18 p.m. EDT (1618 GMT)