Gold holds above 5-1/2-year low as dollar weakens, bears still dominate

By Veronica Brown and Manolo Serapio Jr

LONDON (Reuters) - Gold found respite from recent hefty losses, trading just under $1,100 an ounce on Monday as a weaker dollar helped it up from 5-1/2 year lows, but expectations for a near-term U.S. interest rate hike was seen keeping momentum firmly with the bears.

The Federal Reserve will hold a two-day meeting this week where policymakers are likely to send more signals pointing to a rate rise later in the year as the U.S. economy strengthens.

Spot gold was marginally higher, up 0.1 percent at $1,099.55 an ounce by 0955 GMT, after falling for a fifth straight week last week, the longest run since late 2012.

"The bearish short-term view on gold is that the sequencing of events should lead to a September Fed rate hike," Macquarie analyst Matthew Turner said.

The dollar fell against a basket of currencies after a drop in U.S. stocks and bond yields, making dollar-denominated bullion cheaper for holders of other currencies.

Bullion lost more than 3 percent last week after a sudden, sharp rout across New York and Shanghai markets sparked further selling, sinking prices to $1,077 on Friday, their lowest since February 2010.

U.S. gold for August delivery gained 1.2 percent to $1,099 an ounce.

A steadying from last week's low appears to be mostly due to short-covering, traders said, given large short positions amassed.

U.S. speculators turned bearish on Comex gold for the first time since at least 2006 in the week ended July 21, U.S. government data showed on Friday.

Holdings of the world's biggest gold-backed exchange-traded fund, the SPDR Gold Trust, also fell for a seventh day on Friday to 21.87 million ounces, the lowest since September 2008.

The U.S. rate outlook kept a tight grip on sentiment.

Based on forecasts mistakenly released on Friday, staff economists at the Federal Reserve expect a quarter-point rate increase this year. The Fed later said it was not the correct document and gave a new table showing a slightly lower forecast for gross domestic product and inflation in 2015.

At this week's meeting, the Fed is unlikely to deviate from its recent policy statement or Fed Chair Janet Yellen's congressional testimony this month, Mizuho Bank said.

"The most likely outcome is that Fed rhetoric will emphasise that the U.S. economy is on track for a rate hike(s) this year," the bank said in a note.

In other precious metals, spot palladium fell 1.6 percent to $612.47 an ounce and platinum lost 0.6 percent to $977. Silver was up a third of a percent at $14.69.

(Editing by Jason Neely)