Polished diamond prices seen hit by economy in Q1

* Britain seen as bright spot for diamond jewellery demand

* Italian demand seen struggling due to euro zone crisis

* U.S., China seen as key drivers for polished prices

ANTWERP, Belgium, - Polished diamond prices may struggle to hold onto gains in the first quarter of 2012 due to worries over the global economic outlook, diamond dealers said on Monday.

Dealers attending the Jan. 29-31 Antwerp Diamond Trade Fair said European demand for polished diamonds was slow as consumers were uneasy because of the euro zone debt crisis.

For the U.S. market, however, they talked of signs of improving demand after a good Christmas jewellery retail season.

They added that Britain could be a bright spot for diamond jewellery demand because of a likely increase in tourism later in the year linked to celebrations of Queen Elizabeth's diamond jubilee and to the Olympics.

Certified polished diamond prices rose in 2011, spurred by strong buying in the first half of the year, but global economic uncertainties caused prices to soften in the latter half.

For 2011 as a whole, the Rapaport Group's RapNet Diamond Index of prices for one-carat polished diamonds, a benchmark closely tracked by the industry, rose 19 percent.

While confidence has improved since Jan. 1 following a period of relative price stability and a satisfactory U.S. holiday season, dealers were concerned whether current price levels are sustainable.

"I think prices could remain subdued or fall in the first quarter and possibly pick up after that," said Ruud Biesbroeck of DHV, reflecting the views of other dealers at the fair.

Speaking at their stands in the narrow corridors of the fair in the heart of Antwerp's historic diamond trading hub, dealers said they expected U.S. buyers to re-stock after the Christmas jewellery sales season.

"We're expecting to see solid growth for diamonds from the United States this year as the U.S. economy is picking up," said Shreyash Shah of Antwerp-based Paras Gems.

Dimitri Lismay of Eurostar Diamond Traders, which sells high-end diamonds, talked of rising footfall from U.S.-based buyers to Eurostar's office in Antwerp.

MIXED SIGNALS IN INDIA

India appears set to be an increasingly important driver of polished diamond prices in 2012 as its middle and upper income consumers turn to diamonds to accompany gold in wedding sets.

Indian dealers said their sales of loose diamonds were slow because retailers had stocked up months earlier and not sold as many finished pieces as they had hoped, reducing the need to re-stock now.

The mood was cautious also because jewellers were concerned about the impact of a weak rupee in a dollar-priced market.

Buoyant Chinese demand for diamonds, supported by rising incomes in the world's most populous nation, was again set to drive prices in 2012, dealers said.

Chinese buyers were not out in force at the Antwerp fair, which caters mainly to European and Middle Eastern buyers, but the outlook for Chinese demand will become clearer during the HKTDC Hong Kong International Jewellery Show Feb. 16 to 20.

The main weak spot in terms of demand for polished jewellery was Europe, notably Italy, which has been hard hit by the euro zone crisis, diamond dealers said.

DHV's Biesbroeck said German demand for polished diamonds had held up relatively well, but his German clients had told him that many of his sales to German buyers were destined for clients from Eastern Europe rather than Germany.

Buyers were active from leading UK brands Boodles, Laings of Glasgow, and David Marshall.

Stuart Laing, managing director of Laings of Glasgow, said he expected diamond jewellery sales in the UK to hold up in 2012, even as consumers fear recession.

While volumes of sales are down because all of the prices of precious materials prices have risen, the value of sales is likely to hold fairly steady, he said.