London: Gold held near 2-1/2 week highs on Wednesday as upbeat euro zone economic data supported the euro versus the dollar, and as expectations receded that a U.S. interest rate rise is imminent.
The metal`s five-day rally to Tuesday, its longest since January last year, came after Federal Reserve chair Janet Yellen sounded a cautious note last week on the U.S. economy and the pace of any rate hike.
Spot gold was at $1,192.40 an ounce at 1024 GMT, little changed from Tuesday, while U.S. gold futures for April delivery were up 80 cents an ounce at $1,192.20.
"Yellen last week made it clear that the Fed will probably take more time before we see further interest rate hikes. That was clearly supportive for gold, so we weren`t surprised to see prices rising again," Commerzbank analyst Daniel Briesemann said.
Gold hit its highest since March 6 on Tuesday at $1,195.30 an ounce, before paring gains after U.S. data showed an uptick in underlying inflation pressures and gains in home prices.
"Yesterday`s CPI data from the U.S.... led to renewed expectations for timely rate hikes, which put the brakes on (gold`s) increase," Briesemann said. "We have different data which are keeping each other in balance. Unless we get a clearer picture on what`s going on, gold prices may not move that much."
Since the Fed met last week, expectations for a U.S. rate rise have shifted, with most of Wall Street`s top banks now expecting the Fed to hold off until at least September, compared with previous expectations of June, a Reuters poll showed.
Gold prices had been hurt by expectations for a near-term rate hike, which would lift the opportunity cost of holding non-yielding bullion while boosting the dollar.
The U.S. unit fell against the euro on Wednesday, further underpinning gold, as the single currency benefited from a robust German business morale survey that added to expectations that an economic recovery in the euro zone is strengthening. [FRX/]
However, physical gold demand in Asia, which supported the market when prices were around $1,145-55, is looking sparse at current levels and is not providing the cushion seen previously, precious metals house MKS said in a note on Wednesday.
"Further, it feels that this demand is not likely to re-emerge in any meaningful quantities until prices get back around $1170-75," it added.
Among other precious metals, silver was up 0.4 percent at $16.95 an ounce, while spot platinum was up 0.5 percent at $1,142.20 an ounce and spot palladium was up 0.6 percent at $765.97 an ounce.
