Gold drops to three-week lows on stimulus fears

SINGAPORE (Reuters) - Gold extended losses into a third session on Wednesday, falling to a three-week low after strong U.S. trade data and comments by a Federal Reserve official stoked fears that the U.S. central bank could start tapering its stimulus from next month.

FUNDAMENTALS

* Spot gold had dropped 0.5 percent to $1,275.41 an ounce by 0015 GMT, after losing over 1.5 percent on Tuesday. The metal hit a trough of $1,275.36 on Wednesday, its lowest since July 18.

* U.S. gold dropped $8 to $1,274.50.

* The U.S. economy likely grew faster than initially reported in the second quarter, thanks to a sharp narrowing in the trade deficit to its lowest in more than 3-1/2 years in June as exports touched a record high and imports fell.

* The Fed will probably reduce its massive bond-buying stimulus programme later this year, and depending on economic data could do so as early as September, a top central bank official said on Tuesday.

* A dramatic drop in the recycling of gold jewellery was helping to rebalance the global bullion market, now in surplus, and could set the stage for a price recovery, the industry-funded World Gold Council said on Tuesday.

* German gold trading company Degussa Goldhandel said on Tuesday it had acquired regional precious metals dealer SilviOr GmbH, in a bid to expand trading and vaulting capacity to meet expected growth in coin and bar demand.

* SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.23 percent to 915.04 tonnes on Tuesday.

MARKET NEWS

* The dollar fell broadly on Tuesday, hitting a six-week low against the yen, as investors pared back bets on the U.S. currency on uncertainty about when the Fed will start reducing its bond purchases.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)