By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold reversed early losses on Thursday, buoyed by bargain hunting in China after a five-day losing streak, but remained under pressure as holdings in exchange-traded funds tumbled to their lowest in four years.
Rallying stocks also hurt bullion's appeal as an alternative investment, although tight physical supply in the world's largest consumer India could offer some support.
Gold was flat at $1,392.26 by 0616 GMT, having slipped to a near 1-month low at $1,386.89 in volatile trade. Prices have fallen more than 16 percent this year and are well below a record high of around $1,920 struck in September 2011.
China, the world's second-largest consumer, bought a large amount of gold on Thursday morning after prices fell by more than $20 overnight, said Peter Tse, director at ScotiaMocatta in Hong Kong.
Premiums for gold bars rallied to all-time highs in Hong Kong - China's main source for gold imports - on Thursday after bullion's steepest drop since its April sell-off fuelled another round of buying, constricting supply, according to dealers.
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Gold bars in Hong Kong fetched premiums of up to $5 an ounce over spot London prices, up from $3 an ounce last week.
"The Chinese are buying because of lower prices. But India is not buying as much because of new rules," Tse said.
The Indian central bank earlier this week banned gold shipments by banks on a consignment basis except to meet genuine demand from jewellery exporters, prompting a sharp jump in premiums for physical gold.
Gold investment nearly halved in the first quarter as a brighter view of the U.S. economy prompted investors in the West to favour other assets like stocks over bullion, the World Gold Council said on Thursday.
A drop in ETF holdings indicates that investors are shifting to equities from gold. Holdings in SPDR Gold Trust, the world's largest gold-backed ETF, fell 0.43 percent to 1047.14 tonnes on Wednesday, the lowest since March 2009.
U.S. gold for June delivery stood at $1,391.1, down $5.10.
"The recent stronger profile of the U.S. dollar has undermined some of the financial investments side of buying gold," said Tim Riddell, head of ANZ Global Markets Research, Asia. A stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies.
Financial markets are also buzzing with speculation that the U.S. Federal Reserve may begin winding down its aggressive economic stimulus, undermining the argument for holding gold as a hedge against potential inflation.
(Editing by Lewa Pardomuan and Richard Pullin)