By Clara Denina
LONDON (Reuters) - Gold dropped on Tuesday after posting its strongest daily gain in nearly two weeks on Monday, as the dollar and equities steadied, while investors assessed that weak U.S. data would not derail the world's largest economy from its recovery path.
Gold had been lifted by disappointing U.S. economic data on Monday, including a report from the Institute for Supply Management showing the sharpest slowdown in growth in new orders in 33 years in January.
"Gold is taking the EM turmoil, falling stock markets and lower bond yields (after weak U.S. data) on its chin as these have not really triggered any kind of solid push to the upside and don't seem strong enough to generate an investment shift towards the metal," Saxo Bank senior manager Ole Hansen said.
Spot gold fell 0.6 percent at $1,249.46 an ounce by 1512 GMT. It posted its best daily performance in nearly two weeks on Monday, gaining 1.1 percent, on the disappointing U.S. manufacturing data.
U.S. gold futures for February delivery fell 0.8 percent to $1,249.90 an ounce.
The dollar <.DXY> was up 0.2 percent versus a basket of main currencies, reflecting a drop in the volatility that has accompanied recent turbulence in emerging markets as investors shifted money to traditional safe havens in the developed world.
U.S. stocks opened higher after posting the worst drop since June on Monday, while European equities turned higher after a lower strat.
Bullion has gained around 4 percent so far this year, after a 28 percent drop in 2013, as slowing growth in China and capital outflows from emerging nations hit share markets.
Gold, usually regarded as a safe haven, tends to appreciate when riskier assets like equities lose ground, as investors look for alternatives to protect their money.
However, analysts see any rally in the gold price as a selling opportunity, with current global economic concerns not seen as sufficient to derail the U.S. Federal Reserve's move to taper monetary stimulus.
"Until there are more definitive signs this is the start of a new economic slowdown, or any certainty that Fed policy would change course, even if it was, there is going to be no conviction to gold's upside moves," Macquarie analyst Matthew Turner said.
Market focus will now turn to Friday's U.S. non-farm payrolls report for further clues on the state of the U.S. economy.
With the recent data and emerging market troubles, SPDR Gold Trust, the biggest gold-backed exchange-traded fund, has not seen any outflows in more than a week.
Holdings are still near five-year lows as the fund had seen record outflows of more than 17 million ounces last year.
Physical markets were quiet as China, the world's biggest consumer, was closed for the Lunar New Year holiday.
Spot silver was unchanged at $19.30 an ounce. Palladium was flat at $699.25 an ounce, having earlier fallen to its lowest since December 27 at $695.60.
Platinum fell 1 percent to $1,364.70 an ounce, as wage talks resumed between South Africa's AMCU miners' union and the world's top three platinum producers with hopes to end a nearly two-week strike costing the industry $36 million a day.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Susan Fenton and David Evans)
