By Clara Denina
LONDON (Reuters) - Gold edged higher on Monday after posting its biggest quarterly fall on record, as the dollar steadied ahead of U.S. economic data throughout the week, which should give more clues on the country's monetary policy.
Comments from a U.S. Federal Reserve official on the need to maintain the bank's stimulus measures for longer also helped gold recover some of the previous week's losses, when it fell 5 percent to three-year lows of $1,180.71 an ounce.
Investor confidence in the metal has been eroded - gold plunged 23 percent in the second quarter - as Fed Chairman Ben Bernanke laid out a strategy to roll back the bank's $85 billion monthly bond purchases, which supports an increase in interest rates, making gold less attractive.
Spot gold rose to a session high of $1,247.56 an ounce earlier and was trading up 0.3 percent to $1,236.90 by 1151 GMT. Comex gold futures for August rose 1 percent to $1,236.90. Technically, the metal is set to run into strong support in the $1,155 region, analysts said.
"Today's rebound is showing us that a lot of the panic activity has run its course for now... positions that needed to be reduced were reduced last week," Saxo Bank senior manager Ole Hansen said.
"Obviously, investors will watch the ECB meeting and U.S. data this week and any impact on currencies will affect gold too."
The dollar index <.DXY> retreated from a four-week peak hit on Friday, while European equities rose, shrugging off disappointing China's factory activity data, which reached its lowest in nine months in June.
Investors will look at the U.S. PMI data later in the day, before focusing on Friday's U.S. payrolls report, where a strong reading would lift both Treasury yields and the dollar.
The European Central Bank's policy meeting on Thursday is likely to emphasise that the eurozone economy is in a much different stage of recovery than the United States.
Holdings of gold-backed exchange-traded funds (ETFs) have fallen for the first time this year, with outflows exacerbated by the recent decline in prices. Divestment from the largest ETF fund SPDR Gold Trust totalled nearly 13 million ounces so far this year.
Hedge funds and money managers slashed their bullish bets in gold futures and options to their lowest levels in six years, a report by the Commodity Futures Trading Commission showed on Friday.
WEAK PHYSICAL DEMAND
Lower prices in the past few weeks have failed to rekindle physical demand in Asia, traditionally the biggest buyer of gold.
Asian consumption had helped limit some of the metal's losses when prices fell the most in 30 years in April.
"While the physical market was able to suspend the downward trajectory of gold in April following hefty disinvestment, this time, preliminary data suggest a much weaker physical market footing," Barclays analysts said in a note.
The bank cut its 2013 price forecast to $1,393 an ounce from $1,483.
Sales of American Eagle gold bullion coins plunged to 57,000 ounces in June, the lowest since August last year, as physical demand from retail investors and collectors sank.
Silver turned negative after a steady start, down 0.7 percent to $19.44 an ounce. It reached a near three-year low at $18.19 in the previous session.
Platinum rose 0.9 percent to $1,349.99 an ounce and palladium jumped 2.7 percent to $673.97 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Jason Neely and James Jukwey)
