Gold inches higher on short covering, weak U.S. data

SINGAPORE (Reuters) - Gold ticked up for a third session on Wednesday, buoyed by short covering following a dip in the dollar and soft U.S. manufacturing data.

FUNDAMENTALS

* Spot gold edged up 0.1 percent to $1,070.60 an ounce by 0036 GMT, after gaining about 1 percent in the past two sessions.

* U.S. manufacturing contracted in November for the first time in three years, sending the dollar sliding from an 8-1/2 month high reached on Monday.

* The weakness in the dollar provided some support for the greenback-denominated gold and an opportunity for investors to cover short positions. Hedge funds and money managers are holding a record net short position in COMEX gold contracts, data on Monday showed.

* Despite the recent gains, the outlook for gold remains bearish due to a looming U.S. rate hike.

* The Federal Reserve is widely expected to raise U.S. rates this month for the first time in nearly a decade.

* Bullion fell to a near-six-year low last month and posted its biggest monthly drop in 2-1/2 years in November as investors believed higher rates could weaken demand for non-interest-paying bullion.

* ABN Amro on Tuesday maintained its negative outlook for gold prices in 2016, mainly on expectations the Fed would slowly raise rates into next year, and said prices could fall below $1,000 per ounce in the coming months.

* The Fed should use the communication tools at its disposal at its December meeting to spell out a gradual pace of rate increases, Chicago Federal Reserve President Charles Evans said on Tuesday.

* Traders will be eyeing a European Central Bank policy meeting and U.S. payrolls data later this week for cues.

MARKET NEWS

* U.S. stocks closed higher on Tuesday despite mixed U.S. economic data as treasury yields and the dollar declined while oil prices were choppy ahead of an OPEC meeting later this week.

* The U.S. dollar nursed broad losses early on Wednesday, having retreated from a multi-month peak as bulls got cold feet after U.S. manufacturing contracted in November for the first time in three years.

DATA AHEAD (GMT)

1000 Euro zone Consumer prices Nov

1000 Euro zone Producer prices Oct

1315 U.S. ADP national employment Nov

1445 U.S. ISM-New York index Nov

(Reporting by A. Ananthalakshmi; Editing by Richard Pullin)