By Clara Denina
LONDON (Reuters) - Gold fell 1.2 percent on Monday, holding near its weakest level in two weeks, as the dollar firmed on signs of an improving U.S. job market and as holdings in exchange-traded funds slipped again.
Bullion's safe-haven appeal has been dimmed by speculation the Federal Reserve could scale back its aggressive monetary stimulus after recent U.S. labour market data pointed to a steady recovery trend in the world's largest economy.
Gold dropped more than $18 to $1,429.61 an ounce by 0947 GMT, not far from Friday's low of $1,420.61, its weakest since April 24. Gold plunged to its lowest level in more than two years at $1,321.35 on April 16 after worries about central bank sales and a drop below $1,500 led to a sell-off that stunned investors. It is down 14 percent on the year.
U.S. gold for June delivery fell 0.6 percent to$1,428.60 an ounce.
"Gold has been pulling lower as the dollar strengthened and (bond) yields rose across main regions, making gold less attractive," Danske Bank analyst Christin Tuxen said.
The dollar strengthened against the euro and a basket of main currencies after European Central Bank policymaker Ignazio Visco said if the euro zone economy needed more help, the deposit rate could be cut to negative territory.
Lower interest rates usually favour gold as they encourage investors to put money into non-interest-bearing assets such as the precious metal, but cyclical assets including equities seem more attractive at the moment.
"We would obviously have a different situation if the ECB cut rates to negative but that doesn't seem a route they prefer to go down at the moment and if they don't we will have a scenario where gold can be heading even lower during the course of the year," Tuxen said.
European shares pulled back on Monday, but remained within reach of their five-year highs hit in the previous session.
For a 24-hour gold chart analysis: http://graphics.thomsonreuters.com/AS/WT1/20131305092316.jpg
INVESTORS DIVEST
Hedge funds and money managers trimmed their bullish bets in gold futures and options in the week to May 7 on weaker bullion prices and outflows in gold exchange-traded funds, a report by the Commodity Futures Trading Commission (CFTC) showed on Friday.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund (ETF), fell 0.24 percent to 1,051.65 tonnes on Friday after rising slightly on Thursday. The holdings stood at a four-year low.
Gold shrugged off Chinese data which showed output growth quickened in April, but still missed market expectations.
"Given subdued inflation on both sides of the Atlantic, and damaged investor sentiment, a stronger dollar still represents a major upside hurdle for gold prices," VTB analyst Andrey Kryuchenkov said in a note.
"For now, we expect gold prices to correct back toward $1,400 while at the start of the week, the market's attention turns to U.S. and Chinese retail sales for April," he added.
Bullion hit an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus, raising fears the central bank's money-printing to buy assets would stoke inflation.
Other precious metals tracked gold lower, with silver down 0.8 percent to $23.62, platinum falling 0.5 percent to $1,483.24 an ounce. Palladium was down 0.6 percent to $700.22 an ounce.
(Additional reporting by Lewa Pardomuan in Singapore; editing by Keiron Henderson)
