* Dollar edges lower versus the euro, supporting gold
* China monetary tightening pressures commodities, stocks
* SPDR gold ETF reports further outflow on Tuesday
(Updates, adds comment, changes dateline from TOKYO)
By Jan Harvey
LONDON, Jan 13 (Reuters) - Gold edged higher in Europe on
Wednesday, recovering some of the previous day's 2 percent dip,
as the dollar softened a touch versus the euro, though the metal
remained vulnerable to weakness in other commodities.
Gold had dropped along with most commodities on Tuesday
after China's decision to raise its banks' reserve requirements
sparked fears spending will be curtailed. The dollar initially
benefited from the move, though it has since steadied.
Spot gold <XAU=> was bid at $1,132.65 an ounce at 0946 GMT,
against $1,127.95 late in New York on Tuesday. U.S. gold futures
for February delivery <GCG0> on the COMEX division of the New
York Mercantile Exchange firmed $3.60 to $1,133.00 an ounce.
"Precious metals are probably holding up a bit better
because of the dollar," said Citigroup analyst David Thurtell.
"But they are vulnerable to the China tightening story."
The move may be a precursor to an interest rate rise in
China, analysts said, which would hurt gold as a non-interest
bearing asset. "Bullion never behaves well in a rising interest
rate environment across the globe," said VTB Capital in a note.
The dollar steadied on Wednesday while the yen fell broadly
as investors concluded China's surprise move would not derail
growth, supporting higher-yielding currencies. []
Strength in the U.S. unit curbs gold's appeal as an
alternative asset and makes dollar-priced commodities more
expensive for holders of other currencies.
COMMODITIES PRESSURED
Other commodities continued to be pressured by the China
story, with industrial metals dropping in Europe and oil prices
falling more than $1 a barrel. [] []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation.
"The sharp drop in oil and base metals helped undermine gold
and other precious metals prices," said HSBC in a note.
"Further monetary policy restraint may indirectly limit the
upside for gold if it also tempers the rise in asset prices in
China, with which gold has been strongly correlated in the past
several years," it added.
Equities also slipped, with world stocks <.MIWD00000PUS>
falling 0.3 percent as China's monetary tightening and
disappointing corporate earnings worried investors. []
Holdings of the world's largest gold-backed exchange-traded
fund, the SPDR Gold Trust <GLD>, dipped another 3.7 tonnes on
Tuesday, bringing their decline so far this year to nearly 18
tonnes, or 1.6 percent. []
In India, historically the world's biggest bullion consumer,
gold demand abated on Wednesday as traders awaited a further
fall in prices. []
Silver <XAG=> tracked gold higher to $18.33 an ounce from
$18.24. Among other precious metals, platinum <XPT=> was at
$1,561.50 an ounce against $1,568.50, while palladium <XPD=> was
at $414.50 against $421.50.
U.S. platinum and palladium exchange-traded funds launched
last Friday were met with buying interest, with about 170,000
ounces of metals added in the first two trading sessions, a
spokesman for ETF Securities, which operates the funds, said.
(Reporting by Jan Harvey; Editing by William Hardy)
