Gold gains on weaker Asian shares, still near three-week low

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold edged higher on Monday, as Asian equity markets fell on disappointing Chinese economic data, but the metal failed to make much headway from a three-week low in the previous session due to worries over U.S. interest rates.

Spot gold had gained 0.5 percent to $1,238.80 an ounce by 0739 GMT as Asian shares slipped after dismal Chinese trade data that raised concerns about a deepening slowdown in the world's second-largest economy.

Bullion hit a three-week low of $1,228.25 on Friday, before closing the session down 2.5 percent, after strong U.S. jobs data that stoked expectations of a hike in interest rates.

"The small bounce we are seeing today is probably because of the drop in equities but it may not hold," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

"The bigger factor influencing gold prices is still the timing of the interest rate hike in the United States."

Data on Friday showed U.S. jobs growth rose solidly in January and wages rebounded, a show of economic strength that put a mid-year interest rate increase from the Federal Reserve back on the table.

The U.S. central bank has held benchmark borrowing costs near zero since December 2008, and some believe the jobs data has raised the prospect it would push rates higher, despite inflation running below its 2 percent target.

Higher interest rates could dent demand for gold, a non-interest-bearing asset, and boost the dollar.

Investor sentiment in bullion has taken a hit recently. Hedge funds and money managers cut their bullish bets on gold and silver futures and options for the first time in six weeks during the week to Feb. 3, U.S. Commodity Futures Trading Commission data showed on Friday.

In the physical markets, Chinese premiums rose to $4-$5 an ounce on Monday, from less than $4 in the previous session, as last week's sharp decline in prices attracted some buyers.

But traders were not confident of support from the top consumer over the next few days due to the upcoming Lunar New Year holiday.

Chinese consumers typically purchase gold for gift-giving ahead of the new year holiday on Feb 19-20, but buying is likely to slow during and just before the holiday itself, traders said.

"With Chinese New Year nearly here, the buying activity would have mostly concluded so don't expect much seasonal support from the Chinese at this point," said Howie Lee, an analyst at Phillip Futures in Singapore.

(Reporting by A. Ananthalakshmi; Editing by Michael Perry, Richard Pullin and Biju Dwarakanath)