Gold holds below two-week high on robust dollar, U.S. economy

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold held below a two-week peak on Tuesday, its safe-haven appeal dulled with the dollar near a four-year high and growing signs of strength in the U.S. economy.

The dollar held steady on Tuesday after European Central Bank officials raised the prospects of further stimulus and as investors waited to see if Japan's leader would call a snap election after the country slipped into recession.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies and also weakens its appeal as a hedge.

"Movements in the dollar continue to be the major catalyst for moves in gold, with sharp rallies predominantly the result of short-covering," MKS Capital trader James Gardiner said.

"There should be initial support on the downside around $1,181-82, and on the topside $1,200 will be the key resistance."

Spot gold was steady at $1,186.50 an ounce by 0304 GMT, just down from a two-week high of $1,193.95 hit in the previous session.

U.S. economic data on Monday also hurt gold's appeal as a hedge. While U.S. manufacturing output rose only modestly, other data showed a rebound in factory activity in New York State.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.33 percent to 723.01 tonnes on Monday, the first increase since Nov. 3. [GOL/ETF]

In a reflection of investor sentiment, however, holdings in the fund - which marks its tenth anniversary on Tuesday - were still near a six-year low. The ETF counts hedge fund Paulson & Co as its top investor.

Elsewhere, India's central bank is in talks with the government to increase curbs on gold imports, reflecting policymakers' concerns that a jump in inbound shipments will worsen the country's trade deficit.

More curbs could hit demand from India, the second biggest gold consumer, and add pressure on gold prices.

In top consumer China, local prices held steady at a premium of $2-$3 an ounce, as buying picked up on steadier prices. Sustained robust buying could support prices.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)