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Gold cuts gains on dollar strength after U.S. data

Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015. REUTERS/Neil Hall/File Photo

By Clara Denina

LONDON (Reuters) - Gold cut some earlier gains on Tuesday, as the dollar hit a four-month high after data showed a surge in U.S. housing starts in June, although weaker equities provided support.

U.S. homes surged 4.8 percent to a seasonally adjusted annual pace of 1.19 million units, the Commerce Department said on Tuesday.

Spot gold was up 0.2 percent at $1,328.62 an ounce by 1418 GMT, having earlier reached a session high of $1,334.88. U.S. gold dropped 0.1 percent to $1,328.70 an ounce.

Gold has risen almost 25 percent this year, hitting its highest since March 2014 at $1,374.71 after Britain's vote on the EU.

Prices have since retreated, hit by a series of positive U.S. economic data, while uncertainty around the implications of the Brexit vote eased.

"We saw better economic data coming out of the U.S., giving the Federal Reserve a bit more ammunition to raise interest rates, which could damage gold in the short term," said ETF Securities head of commodity research Nitesh Shah.

The dollar index rose to its highest level since Mid-March on Thursday, making dollar-denominated gold more expensive for foreign currency holders.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

Investors are now waiting for the outcome of the European Central Bank meeting on Thursday for further cues.

"There is talk of some further accommodation being doled out, in which case we could see gold moving a little higher from here," said INTL FCStone in a note. "If the ECB holds back, the selling could resume, with a test of key support at $1,308 possibly being in the cards and needing to hold."

Technical charts also suggest a bearish target at $1,313 for spot gold, Reuters technical analyst Wang Tao said.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, firmed 0.25 percent to 965.22 tonnes on Monday.

Silver fell 0.3 percent to $19.96 an ounce, down for a fourth straight session.

Platinum was down 0.2 percent at $1,091 an ounce and palladium rose 0.8 percent to $648.83 an ounce.

(Additional reporting By Nallur Sethuraman and Vijaykumar Vedala in Bengaluru; Editing by William Hardy and Louise Heavens)