Precious metals tumble on dollar; investors monitor China, Fed policy

By Clara Denina

LONDON (Reuters) - Gold slipped 2 percent on Wednesday as the dollar gained and shares recouped some of their earlier losses, while investors kept a close eye on China's efforts to support its economy.

Gold's losses also hurt sentiment in the more industrial precious metals. Silver fell 5 percent to $13.93, its lowest since August 2009, while palladium, mainly used in emissions control systems for cars, trucks and other vehicles, touched a five-year low of $518.00.

"Negative sentiment in precious metals in the past two days is due to a stronger dollar and a partial rebound in stock markets," Commerzbank analyst Carsten Fritsch said.

Spot gold fell as much as 2 percent to a one-week low of $1,117.35 an ounce in earlier trade. It was down 1.9 percent at $1,119 by 1432 GMT. It was on course for its biggest daily decline since July 20, adding to a 1.2 percent fall on Tuesday.

U.S. gold for December delivery dropped 1.6 percent to $1,120 an ounce.

"Nothing looks particularly attractive at the moment; the volatility in equity markets, the very low level of bond yields," said Julian Jessop, chief global economist at Capital Economics.

Global stocks, which have lost more than $5 trillion since China devalued its currency on Aug. 11, were mixed on Wednesday. U.S. shares rose nearly 2 percent while European markets pared losses but were still down 0.8 percent.

"Currencies on the other hand seem to be more driven by perceptions of what the Fed might do on (interest) rates, while there haven't really been major and obvious big moves in safe havens."

The dollar rose 0.3 percent against a basket of leading currencies after U.S. data on Wednesday showed durable goods orders gained 2 percent in July, suggesting underlying strength in the economy that could still allow the Federal Reserve to raise rates this year.

Worries lingered on whether China's actions would be enough to stabilise its cooling economy.

"Drip-feed of stimulus might not be sufficient to arrest aggressive bears, or significantly lift the economy in a demand-constrained world," Mizuho Bank said in a note.

Platinum was down 0.3 percent at $969.50 an ounce.

(Additional reporting by Manolo Serapio Jr in Manila; Editing by William Hardy and David Goodman)