By Clara Denina
LONDON (Reuters) - Gold rose nearly one percent above $1,300 an ounce on Friday, a day after hitting its weakest level in 2-1/2 months, as violence in Ukraine weighed on equity markets and the dollar.
Ukrainian forces killed up to five pro-Moscow rebels on Thursday as they closed in on the separatists' military stronghold in the east, prompting Russia to begin army drills near the border, raising fears its troops would invade.
"It seems that today's move in gold is driven by risk-off sentiment," HSBC analyst Howard Wen said. "The metal broke above $1,300 ... a bit of technical buying, a stronger euro/dollar have also helped give some support to prices."
Spot gold was up 0.8 percent at $1,303.30 by 1444 GMT. It hit a 2-1/2 month low of $1,268.24 on Thursday on firmer equities and a weaker technical picture before regaining strength on renewed tensions between Moscow and Western powers over Ukraine.
U.S. gold futures for June delivery gained 1.1 percent to $1,304.40 an ounce.
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Yet the metal remains in a fragile situation as interest from long-term investors is still absent, analysts said.
The dollar fell 0.1 percent against a basket of currencies, while European and U.S. shares struggled because of the heightened tensions in Ukraine. [MKTS/GLOB]
Gold tends to have an inverse relationship with equity markets, with investors seeking refuge from riskier assets in times of political or financial troubles.
"Stock market movements remain key over the next few weeks and also U.S. economic data and interest rates decision," Commerzbank analyst Carsten Fritsch said.
In economic data on Friday, U.S. consumer sentiment rose more than expected in April, moving to a nine-month high, according to the Thomson Reuters/University of Michigan index. But the U.S. services sector expanded at a slower rate as job creation decelerated.
Investors are now awaiting next week's U.S. Federal Reserve Open Market Committee's interest rates meeting for more trading cues.
U.S. economic reports are closely monitored for clues on the pace of the Fed's tapering of stimulus measures put in place during the financial crisis. The prospect of tapering was a key factor in gold's 28 percent drop last year.
PREMIUMS STEADY
Premiums on gold bars were mostly unchanged in Asia this week, with a soft yuan curbing demand from top consumer China.
In Hong Kong, premiums were quoted at 80 cents to $1 an ounce to the spot London prices, while in Singapore, a centre for bullion trading in Southeast Asia, the premiums were at $1 to $1.20 to the spot London prices - both mostly unchanged from a week ago.
Curbs on gold imports in India will not be withdrawn immediately, but will be done in a calibrated manner, an official said on Friday.
India, the second biggest consumer of gold after China, last year imposed a record 10 percent import duty on the metal.
Among other precious metals, silver was up 0.7 percent to $19.73 an ounce, having dropped close to a five-month low at $18.91 an ounce in the previous session.
Spot platinum rose 1.1 percent to $1,421.00 an ounce while spot palladium gained 1 percent to $806.50 an ounce.
South African producers Anglo American Platinum, Impala Platinum Holdings and Lonmin said that no resolution had yet been achieved over a three-month strike relating to wages and benefits.
(Additional reporting by Lewa Pardomuan in; Singapore; Editing by David Goodman and David Evans)