Gold near 2-month low; eyes worst week since May

SINGAPORE (Reuters) - Gold held near a two-month low on Friday and was headed for its sharpest weekly drop in nearly three months, hurt by strong U.S. economic data and fears that the Federal Reserve could hike interest rates sooner than expected.

FUNDAMENTALS

Spot gold was little changed at $1,277.69 an ounce by 0030 GMT, near a two-month low of $1,273.06 hit on Thursday, when it fell for a fifth straight session.

The metal is down 2.05 percent for the week, its biggest drop since the week ended May 30.

Bullion was hit hard after minutes from the Fed's July meeting on Wednesday showed policymakers debated whether interest rates should be raised earlier given a surprisingly strong job market recovery.

Thursday data showing U.S. home resales raced to a 10-month high in July and the number of Americans filing new claims for jobless benefits fell last week signalled strength in the economy, dulling gold's appeal as a safe-haven.

Investors fear strong data would prompt the Fed to soon raise interest rates. Higher rates would hurt non-interest bearing assets such as gold.

Markets are eyeing Fed Chair Janet Yellen's speech at the annual gathering of central bankers in Jackson Hole, Wyoming later in the day.

CME Group said it has lowered initial margins for COMEX 100 gold futures by 14.8 percent to $5,060 per contract from $5,940.

Geopolitical tensions in Ukraine and the Middle East were being watched for any escalation in violence that could prompt safe-haven bids for gold.

MARKET NEWS

The dollar hovered just below its 2014 peak against a basket of major currencies early on Friday, with bulls turning cautious ahead of a speech by Yellen.

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