Gold hovers near 2-1/2 month lows on firm equities, fund outflows

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold was steady but near its lowest in more than two months on Wednesday, with stronger equities denting the metal's safe-haven appeal and outflows from bullion funds showing weak investor appetite.

The metal was also weighed down by U.S. data that showed home prices rose in February and existing home sales were a bit stronger than expected. A solid economic recovery would hurt gold's appeal as an alternative investment.

Asia shares held firm after a Chinese manufacturing survey met expectations, while on Wall Street, the S&P 500 and the Nasdaq posted a sixth straight session of gains.

Spot gold was trading flat at $1,283.50 an ounce by 0640 GMT. It fell to a low of $1,277.10 on Tuesday - its weakest since Feb. 11.

"There is support at $1,275. But if we break that level, we are going to fall to $1,250," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.

"The market is bearish right now because there are no physical buyers even at the sub-$1,300 level. Selling by exchange-traded funds is also a negative," he said.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good measure of investor sentiment, has seen sharp outflows in recent days, weighing on prices.

Last week alone, the fund's outflows totalled 9.3 tonnes, erasing all the gains made in the year. Traders said persistent outflows from the top ETF could make any gains in prices hard to hold.

Physical demand in Asia, which tends to provide some support at lower price levels, failed to emerge as buyers expect more price declines, dealers said.

"I thought some demand would emerge when prices fell below $1,300 but I was surprised to see no strong buying interest," said one dealer in Hong Kong.

In top buyer China, demand has been quiet as a weaker yuan made it more expensive to buy dollar-denominated gold.

China's yuan hit a 16-month low against the dollar on Wednesday as companies bought dollars to hedge long yuan positions, amid intensified market anticipation that the yuan's recent weakness will last longer than previously expected.

Shanghai prices were at a premium of about $1 an ounce to spot prices on Wednesday, flipping from a discount overnight.

In other Asian countries, premiums were either stable or slightly lower from week-ago levels.

India's gold imports in April and May could be less than half of arrivals in March, as restrictions on the movement of cash during general elections dent the buying power of consumers, jewellery industry officials said.

(Editing by Muralikumar Anantharaman and Richard Pullin)