Gold bounces on US dollar but near four-month low

Gold regained strength on Wednesday as the US dollar weakened against the euro, but the metal was still within sight of its weakest in nearly four months after signs of progress in the US fiscal talks dented its safe haven appeal.

Fundamentals

* Gold added USD 5.85 an ounce to USD 1,675.39 by 0032 GMT after falling to USD 1,661.01 on Tuesday, its lowest since August on technical selling and growing hopes US legislators are closer to reaching a deal that would avert a fiscal crisis next month.

* US gold futures for February rose USD 6.20 an ounce to USD 1,676.90.

* US House of Representatives Majority Leader Eric Cantor said he expects a vote on a Republican offer to avert the "fiscal cliff" on Thursday, and he expects to have enough votes to pass the measure.

Market news

* The euro hovered at multi-month highs against the dollar and yen on Wednesday, having extended recent gains as tentative signs of progress in the US fiscal talks bolstered demand for riskier assets. A weaker dollar makes dollar-priced gold cheaper for holders of other currencies.

* Japan's Nikkei share average is set to test eight-month highs above 10,000 on Wednesday as investor appetite is boosted by signs of progress in the US fiscal talks and expectations of aggressive monetary easing under the new Japanese government.