Gold holds near $1,280 amid shaky global outlook

By Manolo Serapio Jr

SINGAPORE (Reuters) - Gold steadied near $1,280 an ounce on Monday, after posting its biggest monthly gain in three years, as a shaky outlook for the global economy preserved bullion's safe-haven draw.

Weekend data showed China's factory sector shrinking in January for the first time since 2012. This report came shortly after Friday's U.S. gross domestic product number that marked a sharp slowdown in the fourth quarter.

"Overall there's a sense that the global economy is not doing well and that has boosted the safe-haven appeal of gold. In the short term, we should see gold stay above $1,250," said Howie Lee, investment analyst at Phillip Futures.

Spot gold was off 0.3 percent at $1,279.18 an ounce by 0240 GMT after rising 2 percent on Friday. It ended January with a gain of 8.4 percent, its largest monthly increase since January 2012.

But Lee said the metal's steep gains in the previous session may have been "overdone".

"A single disappointing Q4 GDP data is unlikely to sway the Fed's decision drastically," said Lee, who thinks that the U.S. central bank is still well on track to raise interest rates by June amid signs of a generally strengthening economy.

U.S. gold for April delivery was little changed at $1,280.20 an ounce.

U.S. economic growth slowed to a 2.6 percent annual pace from a 5 percent rate in the third quarter as weak business spending and a wider trade deficit offset the fastest pace of consumer spending since 2006.

China's factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead, raising expectations that policymakers will take more action to forestall a sharper slowdown.

"With the Chinese economy facing headwinds from weaker European demand and disinflation, we see rising pressure for more stimulus measures, such as liquidity injections, interest rate cuts or RRR (reserve requirement ratio) cuts," Mizuho Bank said in a note.

Gold's firm tone is also backed by strong inflows into exchange-traded funds.

Holdings at SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, stood at 24.4 million ounces as of Thursday, the highest since mid-October.

(Editing by Himani Sarkar)