By Manolo Serapio Jr
SINGAPORE (Reuters) - Gold advanced for the third session on Friday and was on track to end a four-week losing streak, supported by firm Chinese demand and a change in views on U.S. interest rates, with some again betting that an increase would not be delayed.
Upbeat U.S. data and comments from Federal Reserve officials on Thursday suggested the U.S. central bank may be on track for an early rate rise this year, negating dovish signals from Fed Chair Janet Yellen's congressional testimony earlier this week.
Gold has fallen more than 7 percent from a five-month high above $1,300 hit in January as expectations of a U.S. rate increase dimmed bullion's safe-haven appeal. But it has found support at around $1,200, thanks to demand from No. 2 consumer China.
"The downside risk for gold is quite limited because buying interest from emerging markets like China will support the price at low levels," said Chen Min, an analyst at Jinrui Futures in Shenzhen.
Premiums on the Shanghai Gold Exchange remained at $4-$5 an ounce over the global spot price on Friday, not far below this year's peak of $7, as more buyers returned to the market after the Feb. 18-24 Lunar New Year holiday.
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Spot gold was up 0.1 percent at $1,209.76 an ounce by 0330 GMT, having touched a one-week high of $1,220 on Thursday. Bullion has gained 0.7 percent on the week.
But the metal is still headed for its biggest monthly loss since September, having fallen nearly 6 percent in February, reflecting the U.S. rate rise worries.
Chinese buying interest tends to weaken when gold is above $1,200 an ounce, said Chen, explaining the limited upside for spot gold prices. "When the price goes below $1,150, Chinese buying should be more aggressive," she said.
China's gold imports from Hong Kong rebounded in January from a three-month low in December, reflecting increased demand ahead of the Lunar New Year.
U.S. gold for April delivery was steady at $1,209.90 an ounce.
U.S. durable goods orders jumped 2.8 percent in January and core consumer prices rose more than expected, putting the prospect of a mid-year rate rise back on the table.
In addition, San Francisco Fed President John Williams and St. Louis Fed chief James Bullard both suggested the U.S. central bank might end its near-zero interest rate policy sooner than some traders expect.
But the fact that gold was holding up above $1,200 indicated "that an eventual (U.S.) rate rise has been largely digested by the market and may therefore be largely priced in", HSBC analyst James Steel said in a note.
(Reporting by Manolo Serapio Jr.; Editing by Alan Raybould)