By Clara Denina
LONDON (Reuters) - Gold rose on Wednesday after a slide to two-year lows this week attracted Asian interest in buying the physical metal, but sentiment was still severely shaken by the biggest two-day loss in 30 years.
Investors continued to exit gold-backed exchange-traded funds, concerned that the metal has lost its shine as a safe haven and inflation hedge.
Gold rose 0.7 percent to $1,383.15 an ounce by 1155 GMT, having tumbled to its lowest since January 2011 at $1,321.35 on Tuesday. The market fell by a combined $225 on Friday and Monday, which compares with a total trading range of $260 in 2012.
It is down about 18 percent so far this year after 12 years of gains.
"We bounced a little bit in the past two sessions, and I suspect there was quite good buying coming out of Asia from places like China and potentially India," Natixis analyst Nic Brown said.
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"I think that at this point a new range will be established. We can't go back to the old $1,500-$1,580 range because investor sentiment has fallen, but it still early days to understand at which levels people will feel they can sell again."
Asian physical buying pushed up premiums for gold bars in Singapore to their highest in 18 months at $1.70 an ounce to spot London prices, but demand from top consumer India was surprisingly low despite the wedding season, traders said.
India celebrates major gold-buying festival Akshaya Tritiya next month, and the wedding season will continue until early June. Indian parents typically give gold jewellery to their daughters when they marry.
In wider markets, European shares sank by over 1 percent as investors positioned for sluggish growth in the euro area, outweighing monetary policy easing in the United States and Japan.
U.S. GOLD FUTURES FALL
U.S. gold futures slipped 0.7 percent to $1,376.50 an ounce as investors continued to exit holdings of exchange-traded funds and as the contract caught up with a recent sell-off in the cash market.
Holdings in the SPDR Gold Trust, the world's largest gold-backed ETF, fell 0.73 percent to 1,145.92 tonnes on Tuesday from 1,154.34 tonnes on Monday. Holdings of global gold ETFs are currently at their lowest since late 2011.
Worries are also festering that other indebted euro zone countries could follow Cyprus in selling bullion reserves to raise cash after the island's finance minister Harris Georgiades expected a sale within the next few months.
"The market is absorbing the negative impact of the Cyprus gold sale news, it is a disproportionate response to what is a relatively small amount of gold, but is more to do with setting a precedent and if selling gold becomes part of any European bailout you have to look at how much metal other countries' central banks hold," Natixis' Brown said.
Credit Suisse downgraded its three-month outlook to negative and expected prices of $1,300 in the next three months.
"Over a one-to-six-month time horizon, risks remain to the downside, given the negative trend and merely neutral fundamentals," it said in a report.
Tokyo gold futures regained strength as the yen weakened, the Nikkei rebounded and physical gold buying picked up. The most active contract, currently February 2014, sank to its lowest since August on Tuesday.
In other precious metals, platinum and palladium fell on news that demand for new cars in the European Union declined for the 18th consecutive month in March, down 10.2 percent to 1.3 million.
Spot platinum fell 1.2 percent to $1,425.75 an ounce, having touched its lowest since last August in the previous session. Palladium was down 1 percent to $670.97.
Silver fell 0.9 percent to $23.15 an ounce after dropping 12.6 percent on Monday.
(Additional reporting by Lewa Pardomuan in Singapore; Editing by Veronica Brown and Jane Baird)