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Gold prices firmed on Tuesday, recovering some lost ground from a one-month low in the previous session, as a weaker dollar, stronger stock markets and lower prices tempted buyers back to the metal.
The euro and stock markets rose as hopes that debt-laden Spain will soon seek a bailout to shore up its economy added to firm U.S. economic data and solid corporate results to sharpen appetite for assets seen as higher risk.
Spot gold was up 0.2 percent at $1,738.80 an ounce at 1003 GMT, well off the previous day's one-month low at $1,728.75, while U.S. gold futures for December delivery were up $2.90 an ounce at $1,740.50.
The metal has been underpinned by expectations that stimulus measures from central banks including the Federal Reserve will keep interest rates low and fuel inflation in the longer term.
"Gold rose sharply from mid-August onwards on expectations of a further round of quantitative easing in the U.S.," BNP Paribas analyst Anne-Laure Tremblay said.
"Since mid-September, the upward trend (has) stalled alongside renewed concerns about weak economic growth, particularly in China. Uncertainty surrounding the euro zone sovereign debt crisis is also weighing on sentiment."
The precious metal remains set for further gains in the longer term, she said, but its current bout of weakness may not be over. "Gold may still have a bit further to correct before it resumes its upward trend," she said.
Prices fell more than 1 percent on Monday after firm U.S. retail sales data, coupled with well-received jobless and consumer confidence reports the previous week, led some to question how far the Fed's latest stimulus programme will extend.
Its scope is explicitly linked to the health of the U.S. economy, particularly the jobs market.
"The open-ended nature of QE3 is only likely to see increased choppiness in gold, since many investors will be pulling out on fears that the Fed could reconsider its ultra-low interest rate guidance and monthly liquidity injections under the ongoing stimulus," VTB Capital said in a note.
"Temporary and, potentially, deeper pullbacks are to be expected, especially given slack physical activity and bullion's strong correlation to riskier assets."
ETF HOLDINGS EASE
Holdings of bullion exchange-traded funds tracked by Reuters fell by 213,228 ounces on Monday, due to an outflow from the largest gold ETF, New York's SPDR Gold Trust.
The largest silver ETF, the iShares Silver Trust also recorded an outflow of 290,558 ounces on Monday. ETFs, which issue securities backed by physical stocks of precious metal, have proved a popular way to invest in bullion in recent years.
From a chart perspective, gold is looking vulnerable after its drop back below its late September low at $1,737.50, according to analysts who study past price moves to determine the future direction of trade.
Support is expected to hold firm at the metal's earlier low near $1,720 an ounce.
ScotiaMocatta analysts said in a note that gold will have to beat resistance at $1,758, and close above that level, to relieve downside pressure.
Among other precious metals, silver was up 0.2 percent at $32.81 an ounce. On Monday it hit its lowest since September 12 at $32.53 an ounce.
"The break below $33.30 (on Monday) in silver proved our near-term bullish view wrong," Barclays Capital said in a note. "Risk is for a dip toward $31.00 before basing."
Spot platinum was flat at $1,635.49 an ounce, while spot palladium was up 0.9 percent at $635.50 an ounce.
By Jan Harvey