Gold steadies as dollar pauses but further weakness seen

By Marcy Nicholson and Clara Denina

NEW YORK/LONDON (Reuters) - Gold steadied on Monday as the dollar rally paused and European shares fell, but it remained near a three-month low after a U.S. jobs report boosted expectations that the Federal Reserve would raise interest rates soon.

Spot gold was up 0.1 percent at $1,166.72 an ounce by 2:30 p.m. EDT (1830 GMT), after marking its biggest daily loss on Friday since Oct. 1, 2013.

U.S. gold for April delivery settled up $2.20 an ounce at $1,164.30.

"Data on Friday was so significantly higher than expected that the market started to think that the Fed will have to start changing their language at the next meeting," Citi analyst David Wilson said.

On Friday, the Labor Department's employment report showed that U.S. employers stepped up hiring in February and the jobless rate fell to its lowest since May 2008, sending Treasury yields higher.

Higher interest rates could dent demand for assets that do not pay interest, such as gold.

The dollar paused after hitting a 11-1/2 year high against a basket of leading currencies. [FRX/]

Greece will meet with European experts on Wednesday to start detailed discussions on Greek reforms tied to its emergency financing, the head of the Eurogroup said.

Persistent uncertainty over the debt crisis, which could see Greece exit the euro zone, could boost retail demand for gold.

"(It is) a lacklustre trading day, as the markets attempt to sell off after last Friday's employment data," said Steve Scacalossi, director and head of sales for TD Securities' Global Metals in New York, in a note.

In a sign of waning investor interest, holdings in SPDR Gold Trust , the top gold-backed exchange-traded fund, fell to their lowest in more than a month on Friday, while speculators cut net long positions in COMEX gold futures and options for a fifth straight week. [GOL/ETF]

Demand for physical bullion in the main Asian markets after the price dip could provide some support, traders said.

Premiums in the second-biggest gold consumer, China, largely traded between $5 and $6 on Monday, up from $4 to $5 in the previous session, signalling increased demand.

Spot silver was down 0.5 percent at $15.86 after falling to its lowest in two months at $15.69 an ounce. Palladium was up 0.5 percent at $819.75 an ounce, while platinum was down 1 percent at $1,160.15 after falling to its lowest since mid-July 2009 at $1,142.50 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Clarke, David Goodman and Chizu Nomiyama)