Gold falls 1.5 pct on stronger equities, stop-loss selling

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold slid 1.5 percent on Monday in its biggest one-day drop in nearly seven weeks on selling from stop-loss orders and as Asian share markets gained strength.

Spot gold fell as much as 1.6 percent to $1,317.00 an ounce, and was at $1,318.11 by 0705 GMT.

U.S. gold futures also fell 1.6 percent, while silver fell nearly 2 percent.

The sharp decline comes after gold posted its sixth straight weekly gain last week and after hitting $1,345 - its highest since March - last Thursday.

"Gold has been under pressure all day as equities have regained some of last week's losses," said one precious metals trader.

"There were some stops triggered after U.S. gold futures breached $1,328, the price at which gold was trading at before the big move on Thursday," the trader said.

Gold climbed sharply on Thursday as worries about the financial stability of Portugal's largest listed bank Banco Espirito Santo hammered equities and stoked fears of an European banking crisis.

But the fears have now faded, with Asian shares gaining on Monday as investors put aside concerns about euro zone banks and looked forward to corporate earnings and a raft of global economic events.

Another trader said troubles at the Portugal bank were unlikely to become a widespread European crisis.

Gold is seen as an alternative investment to riskier assets at times of geopolitical and financial uncertainties. The metal has managed to stay above $1,300 an ounce in recent weeks on safe-haven bids arising from tensions in the Middle East and Ukraine.

Israel appeared to hold off on a threatened escalation of its week-old Gaza Strip barrage on Monday despite balking at Western calls for a ceasefire with an equally defiant Hamas.

On Sunday, the Israeli military had warned residents of the northern border town of Beit Lahiya to leave or risk their lives when, after nightfall, it planned to intensify air strikes against suspected Palestinian rocket sites among civilian homes.

Elsewhere, Russia threatened Ukraine on Sunday with "irreversible consequences" after a man was killed by a shell fired across the border from Ukraine, an incident Moscow described in warlike terms as aggression that must be met with a response.

For this week, markets are eyeing Federal Reserve Chair Janet Yellen's congressional testimony for clues about the U.S. economy and the timing of expected U.S. central bank interest rate hikes.

Investors are also eyeing physical buying in Asia, which has been subdued due to the recent price gains.

"There isn't much demand from India, China or anywhere in Southeast Asia for the last few weeks," said a dealer in Singapore. "Unless prices drop sharply in a short period of time, I don't think we can expect any price support from the physical markets."

(Editing by Joseph Radford and Muralikumar Anantharaman)