Gold down 1 percent as India extends bullion import ban

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold fell about 1 percent on Tuesday to extend losses after the world's largest bullion consumer India further restricted imports of the precious metal.

The Reserve Bank of India (RBI) on Tuesday extended the import restrictions placed on banks, which were introduced last month, to all nominated agencies and trading houses.

The move came after Monday's data showed India's gold imports jumped to around 162 tonnes in May from 142.5 tonnes in April.

"The news that the RBI will curb imports of gold by agencies has weighed prices down today as it is a wider restriction and could imply lower imports of gold into the country," Societe Generale analyst Robin Bhar said.

Bhar said that June imports could drop to between 50 and 100 tonnes with India at the end of the wedding and Hindu festival seasons. Both are traditionally major gold-buying events.

Spot gold fell 1 percent to $1,397.34 an ounce by 2:54 PM EDT (1854 GMT).

On Monday, it gained nearly 2 percent after data showed U.S. manufacturing activity had slowed to the lowest level in nearly four years, weakening arguments for the Federal Reserve to slow its $85 billion monthly mortgage-bond buying.

The central bank said in May that it would scale back its easing sooner if economic indicators showed signs of continued strengthening.

An overall improvement in the U.S. economy and the absence of any inflation in the near future could weigh on gold as interest rates begin to climb, analysts said.

"The potential for real rates to turn positive, which would incur a greater opportunity cost in owning gold, would thus be negative for bullion prices," said James Steel, chief metals analyst at HSBC.

U.S. economic data will remain in focus this week, as Friday's non-farm payroll data for May will provide investors with more clues about how long the Fed might keep U.S. stimulus measures in place.

U.S. Comex gold futures for August delivery settled down $14.70 at $1,397.20 an ounce, with trading volume about 50 percent below its 30-day average, preliminary Reuters data showed.

Holdings of the SPDR Gold Trust, the largest gold-backed exchange-traded fund, remained unchanged on Monday for the fourth day in a row following hefty outflows in the last three months.

Silver fell 1.2 percent to $22.43 an ounce. Platinum was down 0.3 percent to $1,489.24 an ounce and palladium lost 1.2 percent at $747.72 an ounce.

(Editing by William Hardy, Keiron Henderson and Bob Burgdorfer)