GLOBAL MARKETS-Gold surges, dollar up on debt worries

* Gold, commodities surge on inflation fears

* Wall Street zigzags after touching multiyear highs

* Euro zone debt worries hangs over currency market (Updates with U.S. markets' open, changes byline, dateline from LONDON)

By Manuela Badawy

NEW YORK, Nov 9 (Reuters) - Gold surged and the dollar rose against the euro on Tuesday on uncertainty over high sovereign debt in euro zone countries, while U.S. stocks paused after a recent rally drove indices to two-year highs.

Gold extended its record highs to a fourth straight session and oil rose to a two-year high, helped by inflation fears and euro zone debt worries. The Federal Reserve's decision to undertake more stimulus has contributed to the dollar's recent downward trend and led some to worry about inflation.

"We have a combination: inflation fears, currency market uncertainty, fears about the financial strength of some countries," said Alexander Zumpfe of Heraeus Metals.

Debt-striken countries such as Ireland, Portugal and Spain are back in the headlines with the cost of protecting government debt against default rising substantially in the past week, although credit default swap prices eased a bit on Tuesday ahead of a Portuguese bond auction. [ID:nLDE6A8169]

The cost of protecting Portuguese government debt against default rose to a record high.

The renewed concerns about peripheral euro zone economies weighed on the euro , which hit its lowest in more than a week versus the dollar, it was last trading down 0.36 percent at $1.3873.

Some players also closed long positions against the dollar ahead of year-end book-closing.

The dollar was up against a basket currencies, with the U.S. Dollar Index <.DXY> rising 0.19 percent at 77.172. Against the Japanese yen, the dollar was down 0.27 percent at 80.920.

U.S. equities were little changed with few catalysts to drive the market after five weeks of gains, although investors said the recent uptrend remained in place with merger activity a sign of things to come.

The Dow Jones industrial average <.DJI> was down 9.80 points, or 0.09 percent, at 11,397.04. The Standard & Poor's 500 Index <.SPX> was down 0.22 points, or 0.02 percent, at 1,223.03. The Nasdaq Composite Index <.IXIC> was up 0.64 points, or 0.02 percent, at 2,580.69.

European shares <.FTEU3>, however, shrugged off euro zone debt concerns and climbed to two-year highs, up 0.82 percent, on strong company earnings reports.

The MSCI all-country world equity index <.MIWD00000PUS> rose 0.13 percent. Emerging market stocks <.MSCIEF> were up 0.25 percent.

"Quantitative easing, decent macroeconomic data and valuations have helped equities to move higher. Earnings have also played a big role," said Klaus Wiener, head of research at Generali Investments, in Cologne.

"We are in a year-end rally and I don't see any disturbance from the macro data side. The only thing which could be a bit of a problem is the situation in countries like Ireland but this is not being perceived as something which could derail the whole monetary union project."

COMMODITIES RISE, G20 EYED

Gold's rise was assisted by the Fed's decision to buy $600 billion of U.S. government bonds, which weakened the dollar and spurred commodity prices higher, particularly gold, which has gained nearly 30 percent this year so far.

Spot gold prices rose $11.25, or 0.80 percent, to $1420.30 an ounce, while silver touched $28.46 an ounce, the highest since March 1980, palladium saw $728.22 an ounce, its highest since April 2001. Platinum hit $1,790 an ounce its highest since July 2008.

U.S. crude oil rose 15 cents, or 0.17 percent, to $87.21 per barrel, after touching $87.63 its highest since October 2008 following the release of the International Energy Agency's long-term energy outlook, in which it said oil prices might exceed $100 a barrel in 2015 and $200 in 2035.

Meanwhile, U.S. government bond prices fell after data on U.S. wholesale inventories showed a larger than expected rise, fueling questions about whether inventories were gathering dust on shelves.

The benchmark 10-year U.S. Treasury note was down 6/32, with the yield at 2.5774 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.4148 percent. The 30-year U.S. Treasury bond was down 8/32, with the yield at 4.141 percent.

Investors were also watching this week's meeting of Group of 20 leaders in South Korea, pitched as a chance to prevent a currency row escalating into a rush to protectionism that could imperil the global recovery.

There is little sign of consensus and the meeting has been overshadowed by disagreements over the Fed's quantitative easing policy. (Additional reporting by Edward Krudy in New York and Pratima Desai, Atul Prakash and Maria Golovnina in London; Editing by Kenneth Barry)