Gold up for third day on softer dollar; US rate hike pressure looms

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold rose for the third straight day on Thursday on softening dollar and increased tensions between Ukraine and Russia, but the precious metal was under pressure from rallies in equities and the prospect of a U.S. interest rate hike.

Higher interest rates would dull the appeal of non-interest-bearing assets such as gold, which was struggling to cross the key resistance of $1,300 an ounce. Gold prices were more than $600 below a record hit in 2011.

Gold added 0.56 percent to $1,289.60 an ounce by 0635 GMT, moving away from a two-month low of $1,273.06 hit on Aug. 21.

"As far as gold is concerned, the complex has more stacked against it than it has going for it, at least over the short-term," said INTL FCStone analyst Edward Meir.

"In this regard, investment and jewellery demand remains weak, although there are indications of a pickup in India," said Meir, referring to the world's second-largest consumer.

U.S. gold was at $1,290.40 an ounce, up 0.55 percent,

partly due to geopolitical tensions after Ukraine accused Russia of launching a new military incursion across its eastern border.

Although the recent fall in gold prices spurred some buying from the jewellery sector, physical dealers said the quantity was small and some investors also turned to equities.

"Demand from India, especially for silver, has picked up because of the upcoming festival season. Overall, demand has been good in the last two days, but things are quieter today," said a physical dealer in Singapore.

"I guess that's because gold doesn't move either way. It's not clear whether it will break $1,300, so people who need gold may have bought it. Those who want to sell are still waiting for the right price."

Premiums for gold bars in Singapore remained steady at 80 cents to $1 an ounce to spot London prices.

In other markets, Asian shares held steady after pulling back from a 6-1/2 year high as the recent rally in risk assets petered out for now, while the euro clung to modest gains after rebounding from 13-month lows.

"...global equity markets have regained their footing, while the U.S. economy shows no sign of slowing, unlike most other countries around the world," said Meir at INTL FCStone.

"This may mean that despite Yellen's 'fence-sitting' on the issue of rates, investors will likely conclude the window for the Fed to stay sidelined is limited and that talk to the contrary is just that," said Meir, referring to Federal Reserve Chair Janet Yellen.

Pressure is building within the Federal Reserve for officials to move as early as next month to more clearly acknowledge improvements in the U.S. economy and lay the groundwork for the central bank's first interest rate hike in nearly a decade.

(Editing by Biju Dwarakanath)