By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold dropped for a second straight session on Wednesday as global equities and the dollar rose following strong U.S. manufacturing data that rekindled speculation the Federal Reserve could hike interest rates this year.
Other safe-haven assets also fell, with the Japanese yen nursing broad losses, having suffered a big reversal overnight as traders in London and New York took a brighter view on the global economy. [USD/]
Asian equities rallied to two-month highs.
Spot gold slipped 0.5 percent to $1,225.66 an ounce by 0721 GMT.
Selling in gold will likely continue if there's another round of strong buying in global equity markets, said INTL FCStone analyst Edward Meir.
"All this goes to show us that gold still remains very much in the orbit of U.S. equities and we suspect that this will remain the case for some time to come," he said.
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The U.S. S&P 500 Index jumped to an eight-week high on Tuesday.
Shares got a boost after data showed U.S. manufacturing appeared to stabilise in February, with production accelerating and new orders holding steady at higher levels.
The economic outlook was further bolstered by another report on construction spending that scaled a more than eight-year high in January.
The U.S. dollar rebounded against the yen and hit one-month highs against the euro on Tuesday, making commodities priced in the greenback expensive for holders of other currencies.
Investors will be watching more U.S. data to gauge the impact on stocks and the Fed's monetary policy, with the most important one being U.S. non-farm payrolls on Friday.
So far this year, gold has gained 16 percent as turmoil in equity markets and concerns over the global economy triggered speculation that the Fed will not raise U.S. interest rates any further this year. The U.S. central bank hiked rates for the first time in nearly a decade in December.
While gold faces firm resistance at the $1,250-$1,260 level HSBC analyst James Steel believes "the market has built a solid and supportive base above $1,200" and that there is enough risk sentiment and uncertainty to support the metal.
"We are raising the top end of our trading range to $1,300 from $1,275 previously and believe the rally remains essentially intact," Steel said in a note.
Gold is also drawing support from flows into bullion-backed exchange traded funds (ETF). Assets in SPDR Gold Trust, the world's top gold ETF, rose 1.15 percent to 786.20 tonnes on Tuesday, the highest since September 2014.
(Reporting by A. Ananthalakshmi; Additional reporting by Manolo Serapio Jr in MANILA; Editing by Himani Sarkar and Biju Dwarakanath)
