* Gold slips almost 3 pct as firm dollar triggers selling
* Silver falls just under 5 pct in gold's wake
* Investors eye Fed decision on interest rates due Wednesday
(Releads with price fall, comment, updates prices)
By Raissa Kasolowsky
LONDON, June 23 (Reuters) - Gold fell nearly 3 percent in
Europe on Monday as the dollar firmed against the euro and as
oil prices slipped temporarily, triggering a bout of selling.
However, a resurgence in physical demand after gold dipped
below $880 an ounce put a floor in prices.
At 1403 GMT gold was trading at $881.80/882.80 an ounce,
against $901.35/902.75 late in New York on Friday. Earlier it
touched a low of $877.00.
Silver also fell in gold's wake, sliding almost 5 pct to a
session low of $16.56 an ounce. It later recovered to trade at
$16.73/16.78 against $17.36/17.43.
"The most obvious driver of the day is that the euro has
collapsed," said JP Morgan analyst Michael Jansen.
The dollar rallied on expectations the U.S. Federal Reserve
will take a more hawkish line on interest rates later this week
at a meeting in which it is widely expected to leave rates
unchanged at 2 percent.
Meanwhile the euro fell sharply against the U.S. currency
after soft European economic data earlier on Monday which showed
a contraction in manufacturing and services activity in the euro
zone.
A stronger dollar typically weighs on gold, as it is bought
as a hedge against weakness in the U.S. currency. A stronger
greenback also makes dollar-priced gold more expensive for
holders of other currencies.
However, traders said interest in gold from physical buyers,
who have been discouraged by high and volatile prices in recent
months, has supported the market.
"We ran into some good physical interest in the high $870s,"
said Simon Weeks, director of precious metals at the Bank of
Nova Scotia. "That has stopped the rot."
The market is now turning its attention to the U.S. Federal
Open Market Committee's two-day rate-setting meeting, which
starts on Tuesday.
The FOMC is widely expected to leave rates on hold at 2
percent, but is seen sharpening its rhetoric on inflation in its
accompanying statement.
Both its decision and its post-decision statement could have
a significant impact on the dollar, and therefore on gold.
Any suggestion that a rate hike may be forthcoming later
this year could help the currency.
Among other precious metals, spot platinum slipped to
$2,033.50/2,053.50 an ounce from $2,048.50/2,068.50 late in New
York.
Palladium edged down to $466.50/474.50 an ounce from
$469.50/477.50 an ounce.
(Reporting by Raissa Kasolowsky; editing by Peter Blackburn)
