* Gold posts biggest one-day gain since May 13 on Tuesday
* Dollar steps further back from 2-month highs
(Updates prices, adds comment)
By Veronica Brown and Vijaykumar Vedala
LONDON/BENGALURU, June 1 (Reuters) - Gold turned negative on
Wednesday, as the dollar pared losses after U.S. manufacturing
data, while the market tries to assess how close the United
States is to raising interest rates.
Data on Wednesday showed U.S. manufacturing activity
expanded for a third straight month in May, but growth in new
orders continued to slow as factories grappled with sluggish
overseas demand and weak capital spending in the energy
sector.
Spot gold XAU= was down 0.4 percent at $1,210.16 an ounce
by 1455 GMT. The precious metal gained 0.8 percent on Tuesday,
its biggest single-day percentage gain since May 13 after some
10 days of declines.
"There is increasing expectation that there will be a rate
hike by July and that has weighed on sentiment," ETF Securities
analyst Nitesh Shah said.
"In the short term, the rate hike will be dollar positive
and gold-price negative."
The dollar cut losses against a basket of currencies but
remained in the red, mostly due to a stronger yen after Japan's
Prime Minister Shinzo Abe announced a delay in a planned sales
tax hike and flagged risks to the global economy. FRX/
Bullion has climbed nearly 15 percent so far this year, but
buckled after minutes from the Federal Reserve's April meeting
boosted expectations for monetary tightening.
Gold shed around 6 percent in May, its biggest decline in
six months.
While prices gained traction in the past couple of days,
analysts said further losses were possible, exposing
psychological support at $1,200.
"Gold is likely to continue its outperformance relative to
silver for the time being but we still think it's too early to
"buy the dip" outright, particularly ahead of Friday's deluge of
U.S. data (non-farm payrolls, earnings, unemployment, services
PMI, factory orders)," ICBC Standard Bank said in a note.
"...Although we have seen some signs of improvement in
physical demand over the past few days, it has not yet been deep
or broad enough to convince us that the correction is over."
Higher U.S. rates would raise the opportunity cost of
holding gold, which does not earn interest. It would also lift
the dollar, making gold more expensive for buyers in other
currencies.
Among other precious metals, spot silver XAG= was up 0.1
percent at $15.99 per ounce. Spot platinum XPT= was down 0.8
at $966.44, while palladium XPD= fell 0.1 percent to $546.22.