Gold falls as dollar holds near 11-year high

(Reuters) - Gold dropped for a second session on Tuesday, pulling further away from a two-week high as growing expectations for a U.S. interest rate hike kept the dollar near an 11-year peak against a basket of currencies.

Bullion fell the most in five months in February, with the Federal Reserve seen on course to lift rates this year for the first time since 2006 amid a generally strengthening U.S. economy led by gains in its labour market.

Spot gold fell nearly 1 percent to a session low of $1,194.90 an ounce and was trading at $1,199.10 by 0241 GMT, down 0.6 percent.

Firm Chinese demand had kept gold above $1,200 since last week, climbing to a two-week top of $1,223.20 on Monday before slipping.

U.S. gold for April delivery rose as much as 1.1 percent to $1,194.60 an ounce and was last down 0.8 percent at $1,199.10.

"Despite the fact that most people are swaying back and forth on the timing of the U.S. rate hike, there is still consensus that it will happen this year," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Seven of the Fed's current 17 members have now said they at least want the option of an interest rate hike in June on the table, or have pushed in general for an earlier increase in expectation that wages and inflation will turn higher.

The greenback's strength, which makes dollar-denominated assets such as gold more expensive for investors holding other currencies, came despite a batch of soft U.S. data including weak consumer spending and factory activity.

To at Wing Fung expects gold to trade between $1,180 and $1,220 in the short term, and does not see demand from top consumers China and India providing any lasting support.

"We should not have any fantasy that physical gold demand can pull gold out (from low levels)," said To. "In China and India, we can see that the peak for physical gold demand has passed."

Structural reforms in China aimed at a more sustainable pace of economic growth would keep gold demand in check, he said. Most analysts expect China's gold imports via main conduit Hong Kong to recover this year, but to stay below the record 1,158.16 tonnes seen in 2013.

India kept the gold import duty at a record 10 percent in a setback for jewellers when it unveiled its budget over the weekend.

(Reporting by Manolo Serapio Jr. in Manila; Editing by Joseph Radford)