* Gold supported by softer dollar, firm oil
* Strong physical, ETF interest emerges after price slip
* Caution remains watchword ahead of Fed decision
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, June 24 (Reuters) - Gold ended higher on
Tuesday, rebounding from the previous session's sharp drop as
the market took support from a softening dollar against the
euro and as oil prices stayed firm.
Gold <XAU=> was last at $888.70/889.70 an ounce by New
York's last quote at 2:15 p.m. EDT (1815 GMT), up from
$882.85/884.05 in the U.S. market late on Monday.
The strong buying interest that supported gold after
Monday's price slide also cheered the market, analysts said.
"There is growing optimism that the inflows we are seeing
into exchange-traded funds and underlying physical demand are
actually improving," said Daniel Hynes, a metals strategist at
Merrill Lynch.
"That has been quite a strong support of prices at these
levels."
Bullion prices fell sharply on Monday as a bounce in the
dollar against the euro after weak euro zone data sparked a
spate of fund selling.
A stronger dollar often pressures gold, which is bought as
an alternative investment to the U.S. currency.
Rumours that a hedge fund liquidated about 2 million ounces
of gold also contributed to the losses, according to some
dealers.
Nonetheless, gold ran into strong buying interest as it
slipped, with physical buyers in particular weighing into the
market as prices fell.
The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Trust, said it added 12.26 tonnes of gold to
its holdings on Monday as prices fell, bringing them to 628.21
tonnes. []
"It (gold ETF) remains very popular with investors. It
didn't show them exiting, but instead investors took advantage
of the price decline to increase holdings," said James Steel,
metals analyst at HSBC in New York.
The U.S. gold contract for August delivery <GCQ8> on the
COMEX division of the New York Mercantile Exchange settled up
$4.40 at $891.60 an ounce.
Prices were relatively steady on Tuesday, with traders
cautious ahead of Wednesday's interest rates decision from the
U.S. Federal Reserve's Open Market Committee.
While traders expect the FOMC to leave interest rates on
hold at 2 percent, they will be closely watching the
committee's accompanying statement for clues as to their future
bias towards rates.
"The rate decision is not nearly as significant to
participants as what the post-meeting communique will contain,"
said Jon Nadler, a senior analyst at Kitco Bullion Dealers in
Montreal.
If the market takes the statement as a signal a hike in
rates is imminent, it could support the dollar, pressuring
gold.
Among other precious metals, spot silver <XAG=> turned
lower and was last at $16.65/16.71 an ounce from $16.72/16.80
late in New York on Monday.
The volume of silver held in the iShares Silver Trust
<SLV.A>, the largest silver-backed ETF listed in the United
States, slipped by 46.2 tonnes to 5,971.63 tonnes on Monday.
The fund's silver holdings are now at their lowest since
May 13, and have slipped 1.5 percent from the all-time high of
6,063.96 tonnes they hit on June 16. []
"Silver prices have tracked gold prices closely and while
we expect this to broadly continue, we believe silver's weak
fundamentals will expose it to additional downside risk on any
dips in the gold price," said Barclays Capital.
Among other precious metals, spot platinum <XPT=> was last
at $2,011.00/2,031.00 an ounce from $2,033.50/2,053.50 late in
New York.
Spot palladium <XPD=> was essentially flat at
$467.00/472.00 an ounce compared with Monday's last quote in
New York.
(Editing by Marguerita Choy)
