Gold poised to snap three-week rally on economic outlook

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold was holding steady on Friday but was headed for its first weekly drop in four weeks as a string of U.S. data showed more strength in the recovery of the world's largest economy, dimming the metal's safe-haven appeal.

Markets fear that an economic recovery could prompt the U.S. Federal Reserve to continue or increase the pace of tapering its bullion-friendly monetary stimulus.

Other markets were also quiet on Friday with the dollar struggling after two days of gains and Asian stocks trending lower as Wall Street ended weaker on downbeat earnings.

"Looking ahead the gold market may be more interested in the next FOMC meeting slated for 28-29 January," said James Steel, chief precious metals analyst at HSBC.

"In the near term, we are likely to see sideways trading, as the impact of a negative investment climate is offset by good physical demand."

Spot gold was flat at $1,242.86 an ounce by 0349 GMT, and was heading for a 0.3 percent drop for the week.

The latest economic data from the U.S. showed that the number of Americans filing new claims for unemployment benefits fell for the second consecutive week last week, suggesting a sharp step-down in job growth in December was likely to be temporary.

The better labour market tone was also captured by a survey on Thursday showing an acceleration in manufacturing activity in the Mid-Atlantic region, accompanied by a rise in factory jobs.

Earlier this week, the World Bank raised its forecast for global growth for the first time in three years as advanced economies started to pick up pace, adding to the pressure on gold prices.

In China, premiums for 99.99 percent purity gold on the Shanghai Gold Exchange rose slightly overnight to $14 an ounce from $13.

Buying from China, the biggest gold consumer, has been robust in recent weeks ahead of the Lunar New Year holiday on January 31.

Among other precious metals, platinum gained 0.4 percent as members of South Africa's Association of Mineworkers and Construction Union voted in favour of a strike over wages at the world's third-biggest platinum producer Lonmin .

AMCU members have voted in favour of a stoppage at Impala Platinum , and the union will canvas its rank and file at Anglo American Platinum as well. The three are the world's top producers of the platinum and account for more than half of global output.

(Reporting by A. Ananthalakshmi; Editing by Ed Davies)