* China devalues yuan by nearly 2 pct amid economic slowdown
* Gold had biggest gain since June on Monday
(Updates prices)
By Manolo Serapio Jr
MANILA, Aug 11 (Reuters) - Gold dropped on Tuesday as the
dollar strengthened after China devalued its currency to prop up
its economy, adding to the downward pressure on bullion from a
looming increase in U.S. interest rates.
Beijing allowed the yuan to fall to its lowest level in
nearly three years after a run of poor economic data, with the
central bank describing the move as a "one-off depreciation" of
nearly 2 percent.
"No one saw this coming and I think gold might suffer a
fresh round of downward pressure from here," said Howie Lee, an
analyst at Phillip Futures in Singapore.
Gold XAU= was down 0.3 percent at $1,100.70 an ounce by
0616 GMT, but off an early low of $1,093.25. Bullion rose as
high as $1,108.80 overnight, its loftiest since July 21.
Bullion climbed nearly 1 percent on Monday, its biggest gain
since June 18, as the dollar retreated from its highest level
since April against a basket of currencies .DXY on the view
that Friday's lower-than-forecast U.S. nonfarm payrolls in July
meant U.S. rates might not rise next month.
But Lee believed there was still a "60-40" chance of the Fed
raising rates in September. "Overall it felt like a good jobs
report because there were upward revisions to May and June and
higher wage earnings," he said.
U.S. gold for December delivery GCcv1 dropped 0.3 percent
to $1,101 an ounce.
Atlanta Fed President Dennis Lockhart said on Monday that a
decision to raise rates should come soon. He said he was "very
disposed" to a rate increase at the September policy meeting,
but stressed that subsequent increases should be gradual.
Gold has been hit by expectations that the Fed would lift
rates this year for the first time since 2006. Investors have
cut their exposure to non-interest-bearing bullion and raised
their bets on the dollar.
The metal has struggled to recover above $1,100 since
breaching that key support level in a July 20 rout that pushed
bullion down to $1,077 on July 24, its cheapest since 2010.
Spot platinum XPT= fell 0.5 percent to $979.24 an ounce
and palladium XPD= dropped 1.1 percent to $601.05, with both
metals near multi-year lows. Silver XAG= eased 0.3 percent to
$15.17 an ounce.