Gold dips further below $1,200 on robust U.S. data, dollar

By A. Ananthalakshmi SINGAPORE (Reuters) - Gold eased further below $1,200 an ounce on Tuesday as the dollar climbed to a fresh 12-1/2-year peak against the yen and strong U.S. economic data supported expectations of a Federal Reserve rate hike later this year. Spot gold eased 0.1 percent to $1,187.10 an ounce by 0257 GMT. The metal had climbed to a session high of $1,204.31 on Monday but was unable to hold on to the gains and closed the day slightly lower. Gold initially rose in the prior session after U.S. consumer spending growth unexpectedly stalled in April, but gave up those gains after data showed manufacturing activity picked up in May for the first time in seven months and construction spending surged in April to a near 6-1/2-year high. The data kept alive expectations the Fed will hike U.S. interest rates later this year from record lows, boosting the dollar. Higher rates would reduce demand for non-interest-paying bullion. "The lack of follow through buying after clearing $1,200 is a worrying sign for the yellow metal and it looks again likely to test a break lower through the broad $1,180 to $1,185 support range," said MKS Group trader Sam Laughlin. Platinum is also looking increasingly vulnerable amid a strong dollar, he said. After a five-day losing streak, spot platinum was trading at $1,100.70, near its lowest in nearly 11 weeks. The precious metals group has been hit by a surge in the dollar, an investor favourite due to the prospects of higher U.S. interest rates. The dollar rose above 125 yen on Tuesday for the first time since late 2002 as bulls rode positive momentum after upbeat U.S. data overnight helped it overcome tough resistance. A stronger greenback makes the dollar-denominated precious metals more expensive for holders of other currencies. In a reflection of investor sentiment, holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 0.25 percent to 714.07 tonnes on Monday, the lowest since mid January. Aside from more U.S. economic data due later in the day, bullion traders were also keeping an eye out for news on the Greek debt crisis, any worsening of which could trigger safe-haven bids. Athens and its creditors from the euro zone countries and the International Monetary Fund are racing to hammer out a deal that would prevent the country from defaulting and potentially leaving the euro zone.