Gold flat as Greek deal optimism cuts losses

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold traded flat on Thursday, retracing early losses on optimism that a Greek bailout deal would be agreed next week.

Bullion rose off its session low along with the stronger euro and U.S. equities, as hopes rose that Greece had finally done enough to secure a second bailout package after Athens set out extra budget savings demanded by its international lenders.

Analysts said encouraging U.S. labor, manufacturing and housing data also boosted equity markets and helped lift gold off its lows.

"We are seeing less concern in the Europe and strong U.S. data. Gold will be driven by the dollar and whether Greece will get approved for a bailout package," said Peter Buchanan, senior economist, CIBC World Markets.

Spot gold was down 0.1 percent at $1,726.50 an ounce by 1:27 p.m. EST (1827 GMT), sharply off an early session low of $1,705.09 an ounce.

U.S. gold futures for April delivery were down $3.40 an ounce at $1,724.70.

Gold remains up 10 percent in the year to date but is well off its record at $1,920.30 set last year, when bad news from the euro zone tended to have a positive effect on gold, which some saw as a safe haven from economic turmoil.

Analysts said gold prices were underpinned by uncertainty about whether European policymakers have done enough to avoid a chaotic default in Greece or another euro zone country.

"Gold is, so far, finding a fairly solid floor around $1,700.00. There are some big unknowns out there that could throw things out," said Standard Chartered analyst Daniel Smith.

Gold market sentiment improved after data showed the number of Americans filing for new unemployment benefits fell unexpectedly to a near four-year low last week, suggesting the labor market recovery was quickening.

Other encouraging U.S. data showed solid expansion in factory activity in the Mid-Atlantic area this month and builders breaking ground on new residential projects in January.

GOLD DEMAND RISES AGAIN

Gold demand struck 14-year highs in 2011, driven by record investment, buying in China and central bank purchases, which hit their highest in at least 40 years, according to an industry report from the World Gold Council on Thursday.

Major consumer India's gold imports slumped 44 percent in the last quarter of 2011, however, as record-high local prices depressed buying interest, and shipments are likely to remain at similar levels this year.

China could overtake India this year as the world's top consumer of gold, the report said. "(We are) sticking our neck out a bit and suggesting that 2012 will be the first year that China does exceed India in terms of tonnage demand," WGC managing director for investment, Marcus Grubb, told Reuters.

Silver inched down 1 cent at $32.38 an ounce, while spot platinum was down 0.7 percent at $1,619.74 an ounce and spot palladium was down 2.1 percent at $694.22 an ounce.

(Editing by David Gregorio)