* Gold down nearly 3 pct this week
* INTL FCStone sees 25 basis point Fed hike in September
* Silver set for third worst week this year
(Adds Asian physical demand, updates prices)
By Manolo Serapio Jr
MANILA, Aug 28 (Reuters) - Gold edged up on Friday but was
on track to post its biggest weekly drop in five as strong U.S.
economic data backed the case for a near-term increase in
interest rates.
A looming U.S. rate hike has dimmed the appeal of
non-interest bearing assets as gold, which may explain the fall
in the metal from a recent seven-week high even as global
equities tumbled on fears over a slowing Chinese economy.
The upward revision in U.S. economic growth in the second
quarter to 3.7 percent from the initial estimate of 2.3 percent
spurred market expectations that the Federal Reserve could still
raise rates this year despite the market turmoil.
ID:nL1N1120QD
Spot gold XAU= was up 0.4 percent at $1,129.80 an ounce by
0703 GMT, but down 2.6 percent for the week.
The metal touched a one-week low of $1,117.35 on Wednesday
and has lost more than 3 percent since hitting a seven-week top
on Aug. 21.
The robust second-quarter GDP, along with recent strong
housing and manufacturing data, will likely prod the Fed to
raise interest rates next month, said INTL FCStone analyst
Edward Meir.
"For all the talk of market turmoil, it is important to note
that the Fed does not typically look at overseas developments to
make its rate decision and we don't think this time will be any
different," Meir said in a note.
"We are therefore in the minority camp calling for a 25
basis point rate increase next month, with the odds of a hike
improving even more should equity markets recover a good portion
of their losses by then. This should be a net negative for gold,
yet another reason for us to view the complex more bearishly
short-term."
U.S. gold for December delivery GCcv1 edged up 0.6 percent
to $1,129.40 an ounce.
A fall in gold prices from seven-week highs failed to spur
physical demand in Asia, with premiums in India slipping, and
those in China still hooked on volatile equities. GOL/AS
"There's not much interest on the physical side. The Chinese
are still concentrating on the stock market rather than the gold
market," said Ronald Leung, chief dealer at Lee Cheong Gold
Dealers Ltd in Hong Kong.
Holdings of SPDR Gold Trust GLD , the world's largest
gold-backed exchange-traded fund, stood at 21.95 million ounces
on Thursday, the highest in five weeks. GOL/ETF
Spot silver XAG= was steady at $14.48 an ounce, having
fallen to a six-year trough of $13.93 on Wednesday. Silver has
dropped more than 5 percent this week, its steepest such decline
since February.
Palladium XPD= climbed 2.5 percent to $573.58 an ounce,
extending Thursday's 5 percent rebound from five-year lows.
Platinum XPT= was flat at $1,001.