Gold hits 7-week low as Fed rate hike prospects boost dollar

BENGALURU (Reuters) - Gold slipped to a seven-week low on Wednesday as expectations of an early interest rate hike by the U.S. Federal Reserve pushed the dollar to a near two-month high.

FUNDAMENTALS

* Spot gold was little changed at $1,226.41 per ounce by 0033 GMT. The metal fell to $1,223 earlier in the session, the lowest since April 7.

* U.S. gold futures dipped 0.2 percent to $1,226.80.

* The dollar stood near a two-month peak against a basket of currencies on Wednesday after robust U.S. housing data supported the case for the Fed to raise rates in the near term.

* New U.S. single-family home sales recorded their biggest gain in 24 years in April, touching a more than eight-year high as purchases increased broadly, a sign of growing confidence in the economy's prospects.

* U.S. federal funds futures were flat to slightly lower on Tuesday, suggesting traders saw a higher probability that the Fed would increase short-term interest rates in the coming months.

* Further interest rate hikes by the U.S. central bank will be "good news" for the world because they will show its largest economy is in good health, though they could pose a challenge for emerging markets, European Central Bank Vice President Vitor Constancio said on Tuesday.

* Euro zone finance ministers agreed with Greece and the International Monetary Fund on Wednesday on a deal that will address Athens' requests for debt relief, French Finance Minister Michel Sapin said.

* Holdings in SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 0.44 percent to 868.66 tonnes on Tuesday, the first decline in a month.

MARKET NEWS

* Asian shares gained on Wednesday, taking cues from sharp gains in European and U.S. financial shares with MSCI's broadest index of Asia-Pacific shares outside Japan rising 0.4 percent, and Japan's Nikkei <.N225> up 1.7 percent.

* Oil rose about 1 percent on Tuesday on a boost from Wall Street and expectations of a drawdown in U.S. crude inventories, then prices jumped another 1 percent after settlement to nearly $50 a barrel after an industry group suggested the draw was larger than expected. [O/R]

Day ahead (GMT)

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(Reporting by Vijaykumar Vedala in Bengaluru; Editing by Ed Davies)