* U.S. March CPI data shows surprise drop in consumer prices
* Dollar firms to session highs versus the euro
(Updates after U.S. inflation data, adds comment)
By Jan Harvey
LONDON, April 15 (Reuters) - Gold turned lower on Wednesday
after U.S. inflation data showed a suprise drop in consumer
prices, and as the dollar reached session highs versus the euro,
denting the metal's appeal as an alternative investment.
Prices steadied, however, and remained rangebound amid
conflicting signals on inflation and the outlook for equities.
Spot gold <XAU=> was bid at $889.05 an ounce at 1308 GMT
against $888.85 late in New York on Tuesday.
U.S. inflation data for March showed a dip of 0.1 percent in
the consumer price index, against expectations for a rise of 0.1
percent. Consumer prices recorded their first annual drop since
1955. []
"Short term, these figures are obviously not bullish for
gold, but in the longer term you have to look past the current
fall in inflation," said Standard Bank analyst Walter de Wet.
"With all the quantitative easing and low interest rates,
inflation is going to head up again. That is why gold only moved
a few dollars."
The precious metal is often bought as a hedge against rising
inflation, and prices can be dented by deflationary signals.
On the foreign exchange markets, the dollar rose to session
highs versus the euro in the wake of the numbers. A stronger
dollar tends to weigh on gold, which is often bought as an
alternative investment to the U.S. currency. []
The euro earlier fell against the dollar after European
Central Bank Governing Council member Axel Weber said the
central bank will announce a package of "non-standard measures"
in May.
Equity markets also pared losses, helped by a
better-than-expected report on manufacturing activity in New
York state. []
Gold remains largely rangebound as buyers await clearer
signals on the outlook for the financial sector and the equity
markets. Any rise in risk aversion is likely to benefit gold.
IMPACT
"We are stuck in a range here," said Saxo Bank senior
manager Ole Hansen.
"As we are trading sideways, obviously technical levels will
have an impact," he said. "Above $900 (we could) move up to
$918, and below $885 we could see some selling return to the
market, which could take us down to $865, and maybe to $850."
Investment demand remains tentative, with holdings of the
world's largest gold-backed exchange-traded fund, the SPDR Gold
Trust <GLD>, unchanged on Tuesday from last Thursday. []
"With further strong resistance anticipated around $900,
upside momentum may be curtailed until ETF and investment demand
picks up again," said TheBullionDesk.com analyst James Moore.
However, gold demand in India, the world's largest bullion
market, firmed as traders stocked up ahead of the Hindu festival
of Akshaya Tritya on April 27. []
Among other precious metals, spot platinum <XPT=> was bid at
$1,211.50 an ounce against $1,204 late on Tuesday, while spot
palladium <XPD=> was bid at $232 an ounce against $230.
The two metals are consolidating after recent gains that
took them to multi-month highs, after London-based ETF
Securities filed to register the first ETFs backed by platinum
and palladium in the U.S. market.
"It seems (platinum) is going to pause for now,
consolidating below $1,240," said VTB Capital in a note. "A
sustained breach of this level would signal more gains, as the
metal still looks bullish in the long run."
Spot silver <XAG=> was bid at $12.74 an ounce against
$12.72.
(Reporting by Jan Harvey; Editing by Keiron Henderson)
