Gold up 1.5 percent, near $1,400, on poor U.S. home sales

By Frank Tang and Zhe Sun

NEW YORK/LONDON (Reuters) - Gold rose 1.5 percent on Friday, hitting its highest price in more than two months near $1,400 an ounce, as a big drop in U.S. new home sales renewed hopes that the Federal Reserve will maintain its bond-buying economic stimulus.

Silver also rallied more than 2 percent to a three-month high as the dollar fell and U.S. Treasury bond yields dropped.

Sales of new single-family homes in the United States fell more than 13 percent in July to their lowest level in nine months. The Commerce Department data was much weaker than expected, even during a month when Fed stimulus remained in place.

"The new home sales number is terrible, so the fear is clearly that higher interest rate is going to topple this housing recovery, which means the Fed has to ease and not tighten," said Axel Merk, portfolio manager of Merk Funds which has around $500 million in currency mutual-fund assets.

Bullion also drew support when three Fed officials expressed divergent views on when to reduce the central bank's $85 billion monthly bond buying. Investors have been trying to predict what will happen at a Fed policy meeting next month.

Spot gold rose 1.5 percent to $1,395.66 an ounce by 11:21 a.m. EDT (1521 GMT), having hit $1,397.30, the highest price since June 7.

U.S. gold futures for December delivery were up $23.60 at $1,394.80 an ounce, with trading volume about two-thirds of its 30-day average, preliminary Reuters data showed.

Among other precious metals, silver jumped 2.5 percent to $23.68 an ounce, having reached $23.78, which marked the highest price since May 13.

Platinum gained 0.3 percent to $1,541 an ounce, while palladium eased 0.1 percent to $750.47 an ounce.

Prices at 11:21 a.m. EDT (1521 GMT)

(Additional reporting by Clara Denina in London and A. Ananthalakshmi in Singapore; Editing by David Cowell and David Gregorio)