* Gold down for third session in a row
* Fell the most in 5 weeks on Tuesday
* Palladium rebounds, but not far off 5-year trough
* Coming Up: U.S. durable goods orders; 1230 GMT
(Adds details, updates prices)
By Manolo Serapio Jr
MANILA, Aug 26 (Reuters) - Gold slipped on Wednesday as
equities bounced back after China eased monetary policy further
to support a faltering economy and stock markets that had fueled
this week's global rout.
Bullion erased early gains to extend Tuesday's 1.2-percent
drop that came after a recovery in global stocks following
China's move to cut interest rates and bank reserve
requirements.
Asian stocks shook off early weakness to race higher on
Wednesday, led by battered Chinese shares even as worries
lingered on whether China's actions would be enough to stabilise
its cooling economy or halt a collapse in its stock markets.
That could put the focus back on a potential U.S. interest
rate increase this year, dampening gold's appeal.
"If the confidence (in equities) does hold up, the next
question is whether the market is looking at a September or a
December rate hike," said Barnabas Gan, analyst at OCBC Bank in
Singapore.
"The key factor that underpins the bearish view for gold is
very much the Fed rate hike expectation and that possibility is
not off the table."
Spot gold XAU= was down 0.4 percent at $1,135.26 an ounce
by 0609 GMT, on track for a third day of losses. The metal's
1.2-percent fall on Tuesday was its steepest since July 20.
U.S. gold for December delivery GCcv1 dropped 0.3 percent
to $1,135.30 an ounce.
U.S. consumer confidence hit a seven-month high in August
and new single-family home sales rebounded in July, suggesting
underlying strength in the economy that could still allow the
Federal Reserve to hike rates this year. ID:nL1N1100WT
OCBC's Gan said gold, which touched a near seven-week high
of $1,168.40 last week, could only rally towards $1,200 "if
there is confirmation that a U.S. rate hike will not happen this
year".
China's turbulent stock markets turned sharply higher at
midday on Wednesday, following Tuesday's strong dose of central
bank stimulus, though confidence in Beijing's ability to jolt
the economy out of its slowdown remained fragile.
"Drip-feed of stimulus might not be sufficient to arrest
aggressive bears, or significantly lift the economy in a
demand-constrained world," Mizuho Bank said in a note on China's
policy action.
Palladium XPD= climbed 1.7 percent to $545.22 an ounce
after tumbling more than 6 percent overnight, its steepest fall
since April 2013. The metal, mainly used in emissions control
systems for cars, trucks and other vehicles, hit a five-year
trough of $528.50 on Tuesday and has lost around 9 percent so
far this week.
Platinum XPT= rose 0.7 percent to $982 an ounce and silver
XAG= dipped 0.7 percent to $14.59.