* China lifts interest rates for second time this year
* Financial markets eye prospect of ECB rate hike this week
* Silver prices extend gains to fresh 31-year high
(Updates prices, adds comment)
By Jan Harvey
LONDON, April 5 (Reuters) - Gold eased on Tuesday as the
dollar strengthened, oil prices slipped, and China raised
interest rates for the second time this year, while silver also
retreated after reaching a 31-year high in earlier trade.
Moves in the precious metals were limited, however, as
traders remain largely on the sidelines ahead of a key European
Central Bank rates decision on Thursday.
Spot gold <XAU=> was bid at $1,431.40 an ounce at 1330 GMT,
against $1,436.55 late in New York on Monday. U.S. gold futures
for June delivery <GCv1> eased 30 cents to $1,432.70. Silver
<XAG=> was lower at $38.39 against $38.42.
"The Chinese hiked rates today, and (gold) feels a bit
toppish," said Afshin Nabavi, head of trading at MKS Finance.
"Perhaps short term we could come off slightly, giving the
bargain hunters the chance of getting in again.
"Medium term to long term, I still think $1,500 plus is very
possible... but for the short term, maybe a slight liquidation
would be healthy for the market."
U.S. crude prices eased on Tuesday, although Brent crude
edged back into positive territory. Oil remains elevated as
unrest simmers across the oil-producing Middle East and North
Africa region, but like gold is struggling for fresh gains.
But the metal remained underpinned as euro zone sovereign
debt returned to the fore after a Moody's downgrade of Portugal,
knocking the euro from five-month highs versus the dollar.
Worries over the financial health of a number of euro zone
economies were a key factor in gold's rally last year. []
Moody's cut Portugal's sovereign debt rating by one notch,
raising concerns that debt problems in the euro zone periphery
may prevent the ECB from raising rates three times this year,
which the market is pricing in. <ECBWATCH> []
"You have (events in) Libya, debt problems in the EU and
concerns about inflation supporting the (gold) market. Any
changes with these three factors will affect the market," said
Ole Hansen, senior manager at Saxo Bank.
"We obviously look at the ECB decision on rate hikes. That's
a bit of a given now," he added. "The market is pricing it in at
this time, and if the ECB doesn't do anything, we may see the
dollar strengthen and we may see a bit of a sell-off."
SILVER SOCKS 31-YEAR HIGH
Silver prices are expected to extend gains after earlier
rising towards $39 an ounce, analysts say, lifted both by rising
investment as buyers seek a safe store of value and by
expectations that industrial consumption will improve.
The grey metal is widely used in electronics manufacturing,
and in a range of consumer goods such as washing machines and
has antibacterial properties for use in bandages and socks.
[]
Silver has outperformed gold in recent months, rising 22
percent in the first quarter compared with gold's 0.7 percent.
The gold:silver ratio, which shows how many silver ounces are
needed to buy an ounce of gold, fell to a 28-year low at 37.3.
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Graphic showing gold:silver ratio: http://r.reuters.com/seh88r
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"Silver continues to attract investor attention away from
gold, and given current sentiment $40/oz looks inevitable in the
near term," said UBS in a note.
"While there is the real danger that silver prices have
travelled too fast, too soon, for now investors show no sign of
being overly tempted to sell."
Among other precious metals, platinum <XPT=> was at
$1,779.45 an ounce against $1,779.45, while palladium <XPD=> was
at $774.93 against $779.50.
(Additional reporting by Silvia Antonioli; editing by Jane
Baird)
