Gold heads for third weekly drop, firm equities weigh

SINGAPORE (Reuters) - Gold was barely changed on Friday, but was on track for a third straight weekly drop as strong stock markets lured investors seeking better returns while outflows from exchange-traded funds reflected the precious metal's shaky outlook.

FUNDAMENTALS

* Gold was steady at $1,560.86 an ounce by 0040 GMT after falling to its weakest in nearly a week on Thursday.

* The prices, which were headed for a more than 1 percent drop this week, have slipped around 7 percent so far this year after posting annual gains in the past 12 years.

* U.S. gold for June delivery was at $1,561.10 an ounce, down $3.80.

* SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.18 percent to 1,181.42 tonnes on Thursday from 1,183.53 tonnes on Wednesday.

* Heavily indebted euro zone nations such as Italy and Portugal could come under pressure to put their bullion reserves to work as a result of plans for Cyprus to sell gold to meet its financing needs.

* Fallout from the messy bailout of Cyprus will top the agenda of a two-day EU finance ministers meeting in Dublin beginning on Friday, with focus also on growing German reluctance over euro zone banking reform.

* A Pentagon spy agency concluded for the first time that North Korea likely has the ability to launch nuclear-armed missiles, illustrating the high stakes surrounding the escalating tensions on the Korean peninsula.

MARKET NEWS

* Asian shares crept higher and the yen faced fresh lows on Friday as the Bank of Japan's liquidity injections and Wall Street's record-high close overnight continued to underpin investor confidence.

* U.S. stocks rose for a fourth straight day on Thursday, sending the Dow and the S&P 500 to new closing highs as positive data on the labour market and an encouraging retail outlook eased recent concerns about economic growth.

(Reporting by Lewa Pardomuan; Editing by Himani Sarkar)