* Fed expected to raise interest rates next week
* Investors monitor broader decline in commodity prices
(Repeats to additional subscribers)
By Clara Denina
LONDON, Dec 8 (Reuters) - Gold rose on Tuesday as the dollar
receded slightly and European shares fell, though expectations
that the U.S. Federal Reserve will raise interest rates next
week kept the upside in check.
A slide in commodity prices -- particularly crude oil's drop
to its lowest in almost seven years as OPEC continues to pump
near-record oil to defend market share -- also prevented gold
from reaching higher levels. O/R
Further weakness in oil could trigger fears of deflation, a
bearish factor for gold that is often seen as a hedge against
oil-led inflation.
Spot gold XAU= rose 0.3 percent to $1,072.70 an ounce by
1019 GMT, having slid 1.5 percent in the previous session.
U.S. gold futures GCcv1 fell 0.2 percent to $1,073.20 an
ounce.
"For gold now it's just a wait and see game. We had a
short-covering rally yesterday but it ran out of steam quickly,
indicating that the market is still preoccupied with the rate
hike," said Saxo Bank's head of commodity strategy Ole Hansen.
"At the same time, though, the market is not prepared to
react in terms of cutting exposure until we actually have the
news."
European shares fell, while the dollar was down 0.1 percent
against a basket of leading currencies, retreating after a
two-day rally triggered by strong U.S. non-farm payrolls data on
Friday.
Signs that the U.S. labour market is recovering supported
market views that the Fed would raise rates for the first time
in nearly a decade at its policy meeting on Dec. 15-16.
Higher rates tend to drag on non-interest-paying gold by
increasing the opportunity cost of holding the metal, while
boosting the dollar.
Bullion has lost about 9.5 percent so far this year, heading
for a third straight annual decline, as investors abandon
risk-free assets in favour of equities ahead of higher rates in
the United States.
Assets in SPDR Gold Trust GLD , the world's largest
gold-backed exchange-traded fund, tumbled 0.65 percent to 634.63
tonnes on Monday. That is the lowest level since September 2008.
Speculators held a record-high short position in COMEX gold
futures and options in the week to Dec. 1, recent data showed.
Elsewhere, China's gold reserves rose by nearly 21 tonnes
last month, the biggest purchase since it began disclosing
monthly data on the stockpile earlier this year, central bank
data showed on Tuesday.
Among other precious metals, silver XAG= was up 0.1
percent at $14.29 an ounce, having dropped by 2 percent drop in
the previous session. Platinum XPT= edged up 0.8 percent to
$860.10, after a 3 percent drop on Monday, while palladium
XPD= was down 0.1 percent at $548.99.