* Asian equities rebound in tandem with U.S. futures
* Dollar index recovers after deepest drop since 2011
* Palladium tumbles over 7 pct to lowest since 2010
* Coming up: U.S. new home sales at 1400 GMT
(Updates prices)
By Manolo Serapio Jr
MANILA, Aug 25 (Reuters) - Gold fell on Tuesday as Asian
shares bounced off three-year lows and the U.S. dollar rebounded
from a brutal selloff in the prior session that was fuelled by
fears over the fate of the Chinese economy.
Palladium was the worst hit among precious metals, slumping
more than 7 percent at one stage to its lowest since 2010,
adding to a 5 percent slide on Monday.
Some Asian stocks recovered in tandem with U.S. futures even
as Chinese shares tanked further. The dollar gained versus a
basket of currencies .DXY after falling the most since 2011.
"If that remains the case over the course of this session
then buying interest in gold could dry up," said Michael
McCarthy, chief market strategist at CMC Markets in Sydney.
Spot gold XAU= was down 0.5 percent at $1,149 an ounce by
0701 GMT. It closed slightly lower on Monday after a five-day
rally that lifted it to $1,168.40 on Friday, its loftiest since
July 7.
U.S. gold for December delivery GCcv1 slipped 0.4 percent
to $1,148.50 an ounce.
Gold was among the least bruised by Monday's selloff,
dropping half a percent versus a 6 percent slide in Brent crude
LCOc1 and a 2 percent decline in copper CMCU3 .
A near-9 percent dive in China shares sent global stocks and
commodity prices tumbling overnight. That helped gold hold up as
uncertainty over the global economy boosted investor appetite
for safe-haven assets.
"Gold should continue to hold its value during the current
market turbulence, however, a material surge higher is unlikely
as participants find liquidity by selling all asset classes,
including precious metals," MKS Group trader James Gardiner said
in a note.
Also potentially limiting gold's upside potential, a key
Federal Reserve official stuck to his view that a U.S. interest
rate hike would happen this year.
Atlanta Fed President Dennis Lockhart said the Fed will
likely begin raising rates "sometime this year," even as the
steep drop in oil prices clouds the inflation outlook.
ID:nL1N10Z28W
CMC Markets' McCarthy believes a U.S. rate hike can still
happen next month.
"The Fed is focused on the underlying economy, not the share
market. They want to normalise rates so that they have room to
move should another crisis emerge," he said.
Spot palladium XPD= fell to as much as $528.50 an ounce,
its lowest since September 2010, before paring losses to trade
at $546.50, down 4.3 percent.
Platinum XPT= dropped 1 percent to $978 an ounce and
silver XAG= was steady at $14.76.