PRECIOUS-Gold eases after two-day rally ahead of holiday

* Gold rose 2.5 pct from last week's low
* SPDR fund sees some outflow after jump last week
* GRAPHIC-2015 asset returns: http://link.reuters.com/dub25t

(Rewrites paragraph 1, updates prices; adds comment, second
byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, Dec 22 (Reuters) - Gold eased on Tuesday
after a two-day rally, shrugging off the weak dollar and rebound
in oil prices as dealers squared their books ahead of year-end
amid typically light trade leading up to the Christmas holiday.
The metal is up 2.5 percent from last week's trough, which
was near the lowest level since early 2010, reached after the
Federal Reserve announced its first rate rise in nearly a
decade, raising uncertainty over the pace of further increases.
"Most of the things today would've made you think the gold
market would be stable or going up. It's behaving in a contrary,
slightly erratic fashion," said James Steel, chief metals
analyst for HSBC Securities, noting that pre-holiday trade is
typically erratic at this time of year.
"I think it's just book squaring."
Spot gold XAU= was down 0.5 percent at $1,072.20 an ounce
at 3:17 p.m. EST (2017 GMT), while U.S. gold futures GCG6 for
February delivery settled down 0.6 percent at $1,074.10.
"Going into next year, there's probably a bit of downside
risk because investors are not yet focusing on the potential for
interest rates to remain stable," ETF Securities analyst Martin
Arnold said.
Rising interest rates boost the opportunity cost of holding
non-yielding gold, while lifting the dollar, in which it is
priced.
Hedge funds held a record short position going into last
week's Fed hike and have been reducing their negative exposure
in recent days, Saxo Bank said in a note.
"When you get close to the end of the year, liquidity is
getting smaller and people start closing the trades they have
had for the year," ABN Amro analyst Georgette Boele said. "One
of them was short euro, long dollar, short gold."
"We probably didn't get as low as some people may have
wanted, so they're closing (their trades) and they'll try again
next year," she said.
Wall Street climbed while the dollar .DXY slipped against
a basket of currencies as traders took profits on bullish
greenback bets following the Fed's rate hike and a steep drop in
existing home sales in November. MKTS/GLOB USD/
The Fed has linked the pace of future rate rises to the
strength of U.S. data.
While gold drew support from a big rise in holdings of the
top gold exchange-traded fund (ETF) late last week, a resumption
in outflows this week indicated that investors remain cautious.
GOL/ETF
Silver XAG= fell 0.1 percent at $14.26 an ounce, while
platinum XPT= was down 0.3 percent at $870.64 and palladium
XPD= gained 0.6 percent to $552.31.

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