Gold stretches gains as weak US data hits dollar

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold extended gains on Tuesday, with the dollar dropping after disappointing U.S. data stoked concerns about a patchy recovery in the world's largest economy.

But investors were loth to build positions too much ahead of payrolls data on Friday, which will shed more light on the strength of the U.S. pickup.

Gold had added $3.01 an ounce to $1,601.41 by 0253 GMT. It rallied to a 1-month high in March on worries about fiscal stability in Europe, as politicians scrambled to clinch a bailout for Cyprus.

"I think sentiment is neutral. It can't break through $1,620-$1,625, but on the downside, we can say $1,590-$1,585 seem to be the floor," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think the U.S. economy will still continue to recover. The economy in the U.S. is still improving - of course, sometimes the pace is fast, sometimes it's slow."

Recent data pointing to a strengthening economy has helped push stocks to record highs on both the Dow and S&P 500. In theory, strong stock markets should prompt investors and speculators to ditch gold and shift to equities.

U.S. gold for June was at $1,602.00 an ounce, up $1.10.

U.S. factory activity grew at the slowest rate in three months in March, indicating the economy lost some momentum at the end of the first quarter.

The yen rose to a one-month high against the dollar as the data prompted investors to sell the U.S. currency, while Japan's Nikkei stock average dropped 1.8 percent to below the key 12,000-mark for the first time in three weeks.

A firm Japanese yen dragged down gold contracts on the Tokyo Commodity Exchange (TOCOM), with no signs of buying related to tensions in the Korean peninsula.

Gold bars remained on par with spot London prices in Tokyo. Premiums for gold bars were little changed in Singapore and Hong Kong at $1.20 to $1.50 an ounce to spot London prices.

"We saw buying interest from the general public on TOCOM this morning, but then it disappeared. They don't want to buy or sell because of the matters concerning North Korea," said a dealer in Tokyo.

"But of course if North Korea decides to use nuclear weapons, then it will affect the market big time."

The United States has positioned a warship off the Korean coast as a shield against ballistic missile attack as South Korea's new president vowed swift retaliation against a North Korean strike amid soaring tensions.

Source: http://news.yahoo.com/gold-stretches-gains-weak-us-data-hits-dollar-062808496--finance.html

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