By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold fell over 1 percent on Monday, extending last week's 7 percent decline, hurt by a stronger dollar amid worries over an early end to the U.S. Federal Reserve's stimulus programme.
Gold for immediate delivery was trading near three-year lows. Even though stocks underperformed, investors shunned gold's usual appeal as a safe-haven asset, while physical demand in India and China was muted.
"The market is very bearish at the moment and we continue to see more liquidation," said a trader in Hong Kong. "We can see some physical buying interest but not enough to support prices."
The most recent sell-off in gold, down 24 percent this year, began last week when the U.S. Fed held a policy meeting to consider scaling back its $85 billion monthly bond purchases.
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Gold was also hurt as interest rates for short-term funds in China spiked to extraordinary levels last week, after big commercial banks held back on lending in the interbank market.
"The main problem for gold is the current lack of investment interest," Credit Suisse analysts wrote in a note. "The $1,300 mark is a key level to watch and a sustained break to the downside would worsen the technical picture."
Spot gold opened near $1,300 in early Asian trading but had lost 1.3 percent to $1,280.55 an ounce by 0648 GMT. Last week, the metal recorded its worst weekly performance since September 2011, falling to a near-three year low of $1,268.89.
Comex gold fell about $12 to $1,279.70.
SPDR AT NEW 4-YEAR LOWS
Hedge funds and money managers slashed their bullish bets in gold futures and options for a second consecutive week to the lowest level in a month, a report by the Commodity Futures Trading Commission showed on Friday.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell a further 0.54 percent to 989.94 tonnes on Friday - the lowest in over four years.
"Investment demand is not recovering, it's looking very bleak. I think gold is going straight to $1,150," said Dominic Schnider of UBS Wealth Management in Singapore.
Physical demand in the top two gold consumers India and China was muted, unlike the mid-April sell-off in gold that prompted a frenetic rush for the metal, pushing up premiums and tightening supplies.
Indian demand has been hurt by new government rules on financing and imports, as well as a weak rupee.
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Tom Hogue)
