Gold edges up as soft U.S. data rekindles stimulus hopes

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold inched up on Tuesday after near-2 percent gains in the previous session, as weak U.S. manufacturing data raised hopes the Federal Reserve would keep to its monetary stimulus programme for now.

Bullion, typically seen as a hedge against inflation, had been under pressure in recent weeks after Fed Chairman Ben Bernanke said the central bank could slow its $85 billion bond-purchase scheme if the U.S. economy strengthened.

Recent data from the United States and China, however, has underpinned the case for continued monetary support from central banks around the world.

"Signs of when monetary easing is going to taper are going to be a function in the short term (for gold prices)," said Mark Keenan, cross commodity research strategist at Societe Generale.

"We are going to get over-scrutinized analysis of any signs that might suggest it could end slightly earlier than anticipated."

Keenan said the Fed could start slowing its programme in the fourth quarter of this year.

Spot gold had edged up 0.03 percent to $1,411.56 an ounce by 0331 GMT. It gained 1.8 percent to $1,416.11 on Monday as the dollar tumbled on the weak manufacturing numbers.

The U.S. manufacturing sector contracted in May, driving activity to the lowest in nearly four years.

KEY BAROMETER

Investors are now turning their attention to the monthly U.S. nonfarm payrolls report on Friday, with Bernanke saying in May that housing and labour data would determine the timing of any curbs in the monetary programme.

"Employment numbers in the United States have always been and will remain a key barometer to affect any tapering," Keenan said.

Meanwhile, strong physical demand in Asia and a pause in outflows from exchange-traded funds have also bolstered gold prices.

India's gold imports jumped to 162 tonnes in May, from 142.5 tonnes in April, despite a rebound in spot prices from a two-year low in mid-April and new measure by the central bank to reduce imports.

The data raised fears that India, the world's biggest bullion buyer, could impose more restrictions on imports in an effort to decrease its deficit.

Holdings of New York's SPDR Gold Trust, the largest gold-backed exchange-traded-fund, remained unchanged on Monday, showing investors' growing confidence in the metal. The near-three week decline in the holdings came to a stop last Wednesday.

(Reporting by A. Ananthalakshmi; Editing by Ed Davies and Joseph Radford)