Gold slips for third day on rally in stocks, Fed caution

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold fell for a third straight session on Wednesday, hovering near the lowest level in four weeks, as a rally in stocks and investor caution over the Federal Reserve curbing its stimulus programme sapped support for bullion.

Fed Chairman Ben Bernanke said last month the bank could scale back its $85 billion monthly bond purchases if the U.S. economy strengthens, but a lack of clarity on the timing has unsettled markets. A policy statement from the central bank will be released on Wednesday after its meeting.

"Everyone is waiting for the FOMC meeting to end and what Bernanke is going to say about the future of the easing," said a trader in Hong Kong, referring to the Federal Open Market Committee.

"The stock markets are behaving very well and there are too many shorts in the market. Both are hurting (gold) prices."

Spot gold eased 0.1 percent at $1,366.51 an ounce by 0403 GMT, close to a four-week low of $1,356.24 seen on May 23. U.S. gold fell about $1.

Bullion is down nearly 2 percent so far this week and 18 percent for the year.

The winding down of the bond purchases, which the markets fear will begin soon due to strong U.S. economic data, would hurt gold - typically seen as a hedge against inflation.

"A watering-down of the market's quantitative easing tapering expectations should see shorts cover their positions, while any hint that tapering will occur sooner than markets expect should see the market push lower," a note from ANZ analysts said on Wednesday.

Buying in India and China, the top two gold consumers, remained sluggish as demand eased from peak levels seen in April and May.

Shanghai gold futures fell more than 1 percent.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.2 percent to 1,001.67 tonnes on Tuesday - their lowest in more than four years.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Ed Davies)