By Melanie Burton
MELBOURNE (Reuters) - Gold steadied on Friday after a sharp nearly 2 percent drop in the prior session, while a softer dollar kept bullion prices on track for their first weekly rise in four.
The dollar index is currently mired near a more than two-month low and is set to post its biggest weekly drop since late March amid uncertainty on the timing of a rate hike by the U.S. Federal Reserve.
A softer dollar increases bullion's appeal as a safe haven, while lower rates also lend support to non-interest-paying gold.
But recent data showing the number of Americans filing new claims for jobless benefits tumbled to a 15-year low last week, indicating the economy was regaining momentum, should keep the Fed on track to raise interest rates this year.
"There is definitely some debate around when the FOMC will move. We haven't seen any safe-haven demand come through, we're waiting on what happens in Greece and physical markets aren't that great," said ANZ analyst Daniel Hynes, referring to the Fed's policy-setting Federal Open Market Committee (FOMC).
"With that scenario, gold could just drift in the short term," the analyst added.
Spot gold edged down 0.1 percent to $1,182.50 an ounce by 0650 GMT. Prices were set for gains of around 0.3 percent for the week, the first weekly rise since early April.
U.S. gold also slipped 0.1 percent to $1,181.60 an ounce.
"Technical signals are biased to further downside and are showing signs of acceleration," said ScotiaMocatta in a note.
"We remain bearish and look to a closing break of $1,180, with a focus on further weakness toward the mid-March lows under $1,150," it added.
In Asia, physical demand was light, with China and Singapore were closed for holidays. Some physical buying was adding support to prices, as traders closed short positions to cut risk ahead of the weekend.
"A good number of (clients) sold off gold above $1200 so they are buying back right now for some profit taking. They usually don't want to be short too much over the weekend in case of a disaster," a trader at a Chinese bank said.
Bullion also drew some support from global equity markets that posted a second straight session of losses on Thursday after more weak earnings reports, with all three major U.S. indexes plunging more than 1 percent.
For further trading cues on gold, investors are also keeping an eye on the situation in Greece, where Prime Minister Alexis Tsipras's three-month-old government is under heavy pressure to reach an agreement with European and IMF lenders to avert a national bankruptcy.
(Editing by Himani Sarkar and Anand Basu)
