Gold falls as dollar, equities edge higher

(Reuters) - Gold prices fell on Monday amid thin trading as the dollar firmed as the chance of a U.S. government shutdown receded and as stronger equities dampened demand for non-interest paying bullion.

Spot gold dropped 0.4 percent to $1,262.51 per ounce, as of 0900 GMT.

U.S. gold futures also eased 0.4 percent to $1,263.90 an ounce.

Many financial markets in Asia and Europe are closed on Monday for the Labor Day holiday.

Asian stocks shook off a sluggish start and edged up on Monday, with Japan outperforming on upbeat earnings, while the dollar regained traction as the U.S. government looked likely to avoid a shutdown.

The dollar index rose 0.1 percent to 99.098.

U.S. congressional negotiators hammered out a bipartisan agreement on a spending package to keep the federal government funded through Sept. 30, thus averting the first government shutdown since 2013.

"Interest around $1,262 restricted further declines to keep the metal within the recent range and we are likely to see this theme continue today with the UK on holiday," said Sam Laughlin, a trader with MKS PAMP Group.

Last week, gold fell by 1.3 percent, the biggest weekly percentage decline since the week of March 10. But the metal ended the month about 1.5 percent higher.

"We see gold maintaining a relatively higher trading range in May as tensions with North Korea will command more attention now that the bearish impact of the French election is out of the way," said INTL FCStone analyst Edward Meir.

North Korea suggested on Monday it will continue its nuclear weapons tests, saying it will bolster its nuclear force "to the maximum" in a "consecutive and successive way at any moment" in the face of what it calls U.S. aggression and hysteria.

Meanwhile, hedge funds and other money managers increased their net-long position in COMEX gold for the sixth straight week to April 25, lifting it to a 5-1/2-month high, U.S. Commodity Futures Trading Commission (CFTC) data showed Friday.

Money managers again cut their bullish stance in silver futures and options.

Spot silver dropped 0.6 percent to $17.09 an ounce. It hit an 1-1/2-month low at $17.025 early in the session.

Platinum fell 0.7 percent to $937 an ounce. It earlier touched a near three-week low of $934.50.

Palladium was steady at $823.48 an ounce. It rose to an over two-year high at $831.50 on Friday.

(Reporting By Nallur Sethuraman and Swati Verma in Bengaluru; Editing by Biju Dwarakanath and Christian Schmollinger)