Gold hits three-month high as U.S. data eases rate fears

By Marcy Nicholson and Clara Denina

NEW YORK/LONDON (Reuters) - Gold hit a three-month high on Thursday as the dollar came under pressure following a new batch of mixed U.S. data that pushed back expectations of when interest rates in the world's largest economy will rise.

Spot gold rose to the highest since Feb. 17 at $1,227.04 an ounce and was trading up 0.5 percent at $1,221.43 an ounce by 2:28 p.m. EDT (1828 GMT).

U.S. gold futures for June delivery settled up $7 at $1,225.20 an ounce.

The metal was heading for its biggest weekly gain since January, mostly aided by an almost 2 percent rally on Wednesday after the dollar first tumbled to three-month lows after flat U.S. retail sales releases.

Initial claims for state unemployment benefits slipped last week close to a 15-year low reached last month, but other data showed that a strong dollar and lower oil prices suppressed producer inflation in April.

"These should be positive numbers for the U.S. markets," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"You have this magic cocktail of falling unemployment and low inflation and, as the dominant dove faction of the Fed has made abundantly clear, they are unconcerned about trifles like NAIRU (non-accelerating inflation rate of unemployment) if there is no inflation."

The metal shrugged off strength in global equities, which would generally dampen its appeal as a hedge against risk.

"I'm forecasting gold to average $1,200 this quarter, as a slightly weaker dollar will continue to be supportive until we see some stronger data points," Citigroup strategist David Wilson said.

"Only a rebound in employment data will start triggering talks about an imminent interest rate hike again because now expectations have been dampened."

The dollar was down 0.2 percent against a basket of leading currencies, making gold cheaper for holders of other currencies.

Bullion could also find some support from the prospect of a disruption to supply in South Africa because of a labor dispute over pay.

An industry report released on Thursday showed global gold demand eased one percent in the first quarter because of a drop in Chinese jewelry demand.

Despite the drop, China was the world's biggest consumer of gold in the first quarter, well above India.

Silver rose to a three-month high of $17.55 an ounce. Platinum was up 0.7 percent at $1,155.74 an ounce, while palladium fell 0.7 percent to $778.50 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Susan Thomas and William Hardy and Andre Grenon and Andre Grenon)