Gold near one-month high as stocks drop on U.S. growth fears

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold steadied near its highest in a month on Tuesday as safe-haven buying increased amid a drop in equities, with investors fretting over the U.S. growth outlook after a disappointing jobs report last week.

Friday's non-farm payrolls showed that U.S. employers added jobs at a much slower pace than expected, sparking fears about the strength of economic recovery.

Markets speculated that the weak report could prompt the Federal Reserve to proceed cautiously in tapering its historic monetary stimulus, causing equities and the dollar to drop.

Gold has rallied, with some analysts beginning to suggest that gains could continue or at least hold for a little longer.

"If equities stay on the defensive and yields remain low we could see some modest rotational shift out of paper assets and into gold, which could support a push closer to $1,300, but we do not envisage a significant rally above those levels," HSBC analysts said in a note.

HSBC expects a limited rally as investors remain on guard against further tapering through the year.

Spot gold was steady at $1,252.84 an ounce by 0659 GMT, not too far from a one-month peak of $1,254.80.

Asian shares fell on Tuesday, with Japanese stocks tumbling more than 3 percent. The dollar edged up slightly though it has been under pressure since the jobs report.

"The weaker dollar and the jobs data are giving gold a boost. For the moment at least these prices should hold because Chinese buying for the Lunar New Year is also giving support," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.

The Fed last month announced its first cut to its $85 billion monthly bond purchases citing an improving economy. Gold had rallied to all-time highs in 2011 due to these stimulus measures that had been expected to stoke inflation.

Gold is seen as a hedge against rising prices and as an alternative investment to equities.

In China, the biggest physical market for gold, demand has picked up since the beginning of the month in the build-up to the Lunar New Year, when the metal is bought for good fortune and given as gifts.

On Tuesday, trading volumes for 99.99 percent purity gold on the Shanghai Gold Exchange rose to 15.730 tonnes from Monday's 14.630 tonnes. Premiums, however, fell to about $13 from $17.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Sunil Nair)