By Clara Denina
LONDON (Reuters) - Gold rose to its highest since March on Thursday as European shares fell after weak economic data and the dollar remained flat following minutes of the Federal Reserve's June meeting, which gave no sign about the timing of any interest rate rise.
The market gained support from India's decision to keep import duty on gold unchanged at a record 10 percent in the fiscal budget on Thursday, against expectations for a reduction. The move drove India's most-traded August gold contract up as much as 3 percent.
Spot gold rose 1.3 percent to its highest in 3-1/2 months to $1,345.00 an ounce in earlier trade and was up 1.2 percent at $1,341.84 by 1018 GMT. The rise was aided by a technical break through strong chart resistance at $1,334 an ounce, traders said.
U.S. gold futures for August delivery gained 1.3 percent to $1,342.20 an ounce, while silver rose as much as two percent to its highest since March 17 to $21.54 an ounce.
Gold extended earlier gains after European shares drifted lower on weak economic data from Italy and on mounting concern about the financial health of Portugal's largest listed bank.
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"This morning we are seeing some flows into gold as equities started to crumble again ...investors are again diversifying their portfolios and increasing exposure to precious metals as a hedge against concerns about the euro zone's financial situation," Quantitative Commodity Research director Peter Fertig said.
The dollar was trading close to a one-week low against a basket of currencies. A weaker U.S. currency makes dollar-denominated commodities attractive for holders of other currencies.
Gold had come under pressure after last week's strong U.S. jobs report that stoked speculation of an early hike in rates.
Higher interest rates would encourage investors to switch to assets that, unlike gold, pay interest.
But at the minutes from the June 17-18 Federal Reserve meeting, analysts found little to suggest a move forward towards an interest rate increase, currently expected in the middle of next year. The Fed indicated it will end its asset purchases in October.
Markets were awaiting the weekly jobless claims report, scheduled at 1230 GMT.
INDIA DUTY UNCHANGED
Some in the Indian gold industry had expected the new government led by Narendra Modi would ease import restrictions introduced last year, but no change came from a fiscal budget meeting on Thursday.
In 2013, India took steps to curb gold purchases and imposed a record 10 percent duty on imports in an effort to reduce its high current account deficit.
A senior official at the country's biggest gold trade group earlier this week said he expected India to ease its gold import duty to 6 percent in Thursday's budget. Indian gold imports slid by a fifth last year.
Among other precious metals, platinum and palladium continued to gain amid fears over supply issues from major producer South Africa.
Palladium rose for a 14th straight session to trade near its highest since February 2001, up 0.7 percent at $873.70 an ounce, while platinum rose 1.3 percent to $1,514.50 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Keiron Henderson)