By Manolo Serapio Jr
SINGAPORE (Reuters) - Gold edged higher on Friday after falling more than 2 percent to a two-week low overnight on concern over a looming increase in U.S. interest rates, with bullion remaining on track for its biggest weekly drop in two months.
Spot gold was up 0.4 percent at $1,261.16 an ounce by 0027 GMT, after falling as low as $1,251.86 on Thursday, its weakest since Jan. 15. Gold's 2.2-percent drop overnight was its steepest since mid-December.
The precious metal has lost 2.6 percent so far this week, after pulling further away from a five-month high set on Jan. 22.
U.S. gold for delivery in February gained half a percent to $1,260.90 an ounce, after tumbling 2.4 percent on Thursday.
Spot silver rose 0.2 percent to $16.96 an ounce after sliding nearly 6 percent in its deepest fall since September 2013. U.S. silver futures advanced more than 1 percent after falling over 7 percent.
The Federal Reserve painted a bullish view of the U.S. economy after its first policy meeting this week that analysts say puts it on course to raise interest rates as early as June. That dimmed the appeal of non-interest yielding assets such as gold, which Phillip Futures expects to fall below $1,200 again once the first U.S. rate hike occurs.
There were more signs of strength in the U.S. economy on Thursday after data showed the number of Americans filing new claims for unemployment benefits tumbled last week to its lowest level in nearly 15 years.
Investors will next be eyeing U.S. fourth-quarter gross domestic product data due out on Friday that may show a solid pace of economic expansion as the Fed had described in its policy statement on Wednesday.
India overtook China as the world's biggest gold consumer in 2014 as global physical demand fell, an industry report showed, forecasting that prices that have declined for the last two years would bottom out this year.
South Africa's Lonmin said it would maintain its annual production target but cut capital expenditure in 2015 as the third-largest platinum producer battles with low metal prices.
(Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)
