By Jan Harvey
LONDON (Reuters) - Gold rebounded by 1 percent on Thursday as the euro bounced back from a six-week low against the dollar after European Central Bank (ECB) chief Mario Draghi indicated that further interest rate cuts in the euro zone are unlikely.
Both the single currency and bullion prices had fallen earlier in the day after the ECB reduced interest rates and expanded its bond-buying programme in an attempt to boost growth and inflation in the currency bloc.
That sent spot gold to a low of $1,237.06 an ounce, but by 1501 GMT it had jumped back to $1,265.71, up 1.1 percent. U.S. gold futures for April delivery were up $9.70 at $1,267.10.
The ECB dropped its main refinancing rate to zero on Thursday, from 0.05 percent, while expanding its quantitative easing asset-buying programme to 80 billion euros ($88.7 billion) a month from 60 billion euros and cutting its deposit rate to -0.4 percent from -0.3 percent.
That initially sent the euro sharply lower, but the currency recovered to a three-week high against the dollar after Draghi said the bank did not expect that it would be necessary to cut rates further.
"This was seen as maybe a prelude to further stimulus, but the fact that there has now been a line drawn under that is giving some comfort to the euro, and therefore to gold," Mitsubishi analyst Jonathan Butler said.
"The attention now turns to what the Fed is going to do next week. Looking at the Fed futures market now, the money seems to be on a September rate rise, which is quite a change from a couple of weeks ago."
The Federal Reserve's March meeting was tipped last year as a likely point for the U.S. central bank to raise interest rates further, though that possibility has receded as financial market volatility picked up and concern over global growth gained momentum.
Gold has benefited this year from expectations that the Fed would hold off further increases after raising rates for the first time in nearly a decade in December. The metal's price has risen by 20 percent from the start of the year to last week's peak of $1,279.60, its highest since Feb. 2015.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, resumed their upward trend after a brief hiatus, rising by 2.1 tonnes on Wednesday after a 2.4-tonne outflow on Tuesday.
In other precious metals, silver rose 1.7 percent to $15.53 an ounce, platinum gained 0.7 percent to $981.49 and palladium was up 0.8 percent at $567.72.
($1 = 0.9016 euros)
(Additional reporting by Manolo Serapio Jr.; Editing by Mark Potter and David Goodman)
