By Clara Denina
LONDON (Reuters) - Gold steadied on Monday, following a three-day rally that pushed it to its highest in two weeks, as a weaker dollar and caution from the Federal Reserve on the timing of a possible hike in U.S. interest rates generated modest investor interest.
Spot gold was unchanged at $1,182.60 an ounce by 1107 GMT. It climbed to its highest since March 6 at $1,187.80 on Friday, as the dollar tumbled.
European shares fell, also on caution about whether Greece can reach agreement with creditors to secure fresh funds ahead of a meeting between its prime minister and Germany's Angela Merkel.
Gold is usually seen as an insurance against risk in times of financial or economic troubles when equities underperform.
The dollar was down 0.4 percent against a basket of leading currencies. It came under pressure after the Fed's cautious stance on the health of economic recovery in the United States.
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Market players' consensus expectation for a U.S. interest rate increase has shifted, with most of Wall Street's top banks now expecting the central bank to hold off until at least September, a Reuters poll showed.
"Last week, the Fed was more dovish than expected, the dollar fell versus the euro ... and the market is now hedging towards a September rate cut rather than June," Societe Generale analyst Robin Bhar said.
"But we think the dollar's bullish trend will continue and this is a temporary pause … we'll get more economic data this week, which will give us another view of the economy."
Gold had dipped to a four-month low before the Fed met last week as concerns mounted over higher U.S. interest rates which could dent demand for non-interest bearing bullion.
Despite the modest gain in prices, investor sentiment has not improved drastically.
Hedge funds and money managers slashed their bullish bets in gold and silver futures and options for a sixth straight week in the week ended March 17, U.S. Commodity Futures Trading Commission data showed on Friday.
Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to the lowest since late January at 744.40 tonnes on Friday.
In the physical markets, demand weakened compared to last week's levels.
In China, the second biggest consumer, premiums over the London price eased to $4-$5 an ounce, lower from Friday's levels of $6-$7.
Platinum rose 0.3 percent to $1,137.55 an ounce, while silver fell 0.3 percent at $16.69 an ounce and palladium was down 0.4 percent to $772.50 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy)