* Gold edges down as dollar firms but dip buying supports
* China says it will be prudent in adding to gold holdings
* Palladium retreats further from 2-year high
(Updates, adds comment, previous SINGAPORE)
By Jan Harvey
LONDON, March 9 (Reuters) - Gold prices eased in Europe on
Tuesday as a firmer firmer dollar curbed buying, but the metal
found good support from bargain hunting around session lows
after its 1 percent fall in the previous session.
Spot gold <XAU=> was bid at $1,120.20 an ounce at 1023 GMT,
against $1,122.85 late in New York on Monday. U.S. gold futures
for April delivery <GCJ0> on the COMEX division of the New York
Mercantile Exchange slipped $3.30 to $1,120.70 an ounce.
"It was very quiet in the Far East and early in Europe,"
said Afshin Nabavi, head of trading at MKS Finance in Geneva.
"It feels like a $1,115-$1,125 kind of day."
The metal had found good support on price dips, he added.
"Overnight there have been some good bids around $1,120 an
ounce," he said.
The euro softened a touch versus the dollar on Monday,
having struggled in the last session when Prime Minister George
Papandreou warned if the Greek crisis worsened it could lead to
a new global financial meltdown. []
While the dollar's resulting gains versus the euro should
have pressured gold, fears over a potential currency crisis have
supported the metal, sending it to record highs in euro
<XAUEUR=R> and sterling <XAUGBP=R> terms.
Oil prices also slipped back from eight-week highs on
Tuesday, falling more than $1 a barrel at their session lows, on
expectations of a rise in U.S. crude inventories and on the
stronger dollar. []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation.
CHINA OPTS FOR PRUDENCE
China's top foreign exchange manager, head of the State
Administration of Foreign Exchange Yi Gang, said on Tuesday
Beijing will be prudent in adding gold to its official reserves,
wary that such a move would drive prices higher. []
Speculation has been rife in the last year that China would
add to its gold reserves, given that its current holdings make
up only a small proportion of its foreign exchange reserves.
UBS analyst Edel Tully said in a note that given the
price-negative undertones of Yi's comments, the gold market's
reaction to the news had been muted.
"While we would expect more near-term downside for gold once
the news sinks in, it is unlikely to entirely quash market
expectations that China will indeed move to increase its reserve
capacity for gold," she said.
Palladium <XPD=> fell most among the precious metals on
Tuesday, slipping more than 2 percent as traders cashed in gains
after its rise to two-year highs at $480 an ounce late last
week.
The white metal, primarily used in autocatalysts, has
benefited from well-received February car sales numbers from
China and the United States -- both primarily petrol-engine
markets, which use a higher loading of palladium than platinum.
The launch of a new palladium-backed exchange-traded fund in
the United States and persistent fears over the outlook for
Russian stockpile sales this year have also supported prices.
But traders said the metal's run higher may have been overdone.
"We now expect to see the price calming down," said precious
metals house Heraeus in a weekly report. "It appears unlikely
that the metal can hold above the $500 an ounce mark for any
extended period of time; at least not in the near future."
Palladium was at $459.50 against $470, while platinum <XPT=>
was at $1,584 an ounce against $1,595.50. Among other precious
metals, silver <XAG=> was at $17.07 an ounce against $17.21.
(Reporting by Jan Harvey; Editing by William Hardy)
