* Gold drops by as much as 1 pct
* Dollar extends biggest one-day rally in a month
* European shares slip as oil prices take a step down
* GRAPHIC-2016 asset returns: http://reut.rs/1WAiOSC
(Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, April 14 (Reuters) - Gold eased on Thursday as the
dollar extended its biggest one-day rally in over a month,
though losses were limited by a retreat in oil prices and
European stocks, which supported interest in the metal as an
alternative asset.
The precious metal has eroded all its early gains for the
week after touching a three-week high at $1,262.60 an ounce on
Tuesday, under pressure from a rebound in the U.S. currency.
Spot gold XAU= was down 0.2 percent at $1,240.76 an ounce
at 0936 GMT, while U.S. gold futures GCv1 for June delivery
were down $5.70 an ounce at $1,242.60.
The metal has steadied after its biggest quarterly rise in
nearly 30 years, driven by a retreat in expectations that the
Federal Reserve will push ahead with rate hikes this year.
That would lift the opportunity cost of holding non-yielding
assets, while boosting the dollar, in which gold is priced.
"The big shock for the gold market, and commodities markets
in general, was the big move higher in the dollar yesterday,"
Danske Bank analyst Jens Pedersen said. "Overall I see gold
prices remaining fairly stable around current levels."
"What risks the gains in the gold market this year reversing
is the Fed starting to push ahead with rate hikes, but I don't
see them hiking before September," he said. "If the recent slide
in the dollar is sustained, gold will keep these gains."
The dollar rose another 0.2 percent versus a currency basket
as improved risk sentiment led investors to trim positions in
low-yielding currencies like the yen and the euro. FRX/
European stocks eased 0.2 percent, however, weighed down by
a half-percent drop in oil prices as the International Energy
Agency trimmed its forecast for demand growth and on signs that
a producers' meeting this weekend will not yield a concrete plan
to reduce oversupply. .EU O/R
Bullion-backed exchange-traded funds have seen outflows of
late following sharp inflows earlier in the year. Holdings of
the world's largest gold-backed ETF, SPDR Gold Shares GLD ,
fell 5.05 tonnes on Wednesday to their lowest in a month.
"Gold is weakening on a recovery in investor risk appetite.
The sharp (equities) rally and the levelling off of gold-ETF
demand recently argue for some period of price consolidation,"
HSBC said in a note.
"It is possible this consolidation turns into liquidation,
but we think any continued sell-off, though likely, should be
modest."
Among other precious metals, silver XAG= was down 0.3
percent at $16.14 an ounce, after reaching its highest since
late October the previous day. Platinum XPT= was down 0.4
percent at $990.50 an ounce, while palladium XPD= was down 0.4
percent at $540.55 an ounce.
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