Gold steady despite changes in reserve requirements in China

Gold was steady on Friday, having dipped briefly after China raised bank reserve requirements, as uncertainty over Europe's fiscal health continued to attract investors to bullion.

Spot gold XAU= was up 0.2 percent to $1,390.16 an ounce at 1155 GMT, from $1,387.39 late in New York on Thursday. It was heading for a 1.6 percent weekly decline, having touched a record on Tuesday at $1,430.95.

China's central bank on Friday said it was raising lenders' required reserves by 50 basis points, effective Dec. 20, its sixth official increase this year.

The move, following an interest rate rise in October and two reserve requirement increases in November, is Beijing's latest step to mop up excess cash in the economy.

"Tighter global monetary policy is bad for gold, and this is tighter monetary policy. But only slightly, and in one part of the world, so the impact is not huge," said analyst Matthew Turner at Mitsubishi Corp.

Rising interest rates raise the allure of bank deposits for investors over gold, while also boosting storage costs for the metal.

However, concerns over European sovereign debt polished the metal's appeal as it is seen as a safer investment.

"Prolonged uncertainty over indebted Eurozone countries will only be gold supportive," said Andrey Kryuchenkov.

Ireland's debt owes continued to grab attention from investors, as Fitch downgraded the country's rating and the opposition party said it would vote against a bailout package.

The euro was steady against the dollar on Friday, staying soft on concerns over the sovereign debt crisis in the euro zone while talk of the possibility of more monetary tightening in China dampened appetite for risk. [USD/]

Traders said the market was set for choppy trading as interest ebbs at year-end.

"It's obviously been another roller-coaster week. There has been a underlying shift to gold as an alternative currency with both the dollar and euro weak, and lack of confidence in global banking and so gold remains in demand," said one London trader.

The trader saw key support at $1,365 with a close or fix below $1,360 potentially triggering heavy sales.

"But I think a retest of highs is likely," he added.

U.S. gold futures GCG1 were little changed at $1,391.30.

After gold's pull back this week, physical demand has come in to underpin prices as investors scout for bargains, which suggests the metal may be finding its feet.

"Tuesday-Thursday was our strongest three-day run of physical sales to India since late October, when gold was trading around $1,320," said UBS analyst Edel Tully.

"Physical buying from India and other centres this week was likely one of the reasons more investor longs didn't liquidate, as strong physical demand is often a sign that a downtrend is about to bottom."

Investors are also eyeing a Federal Reserve meeting next Tuesday, the first after fierce debate on whether the central bank's further quantitative easing would help the world's largest economy. [FED/DIARY}

Holdings in the SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, had been trending down in the past week. It declined 1.518 tonnes to 1,293.778 tonnes by Dec. 9 from the previous day. [GOL/SPDR]

In comparison, holdings in the iShares Silver Trust (SLV), the world's largest silver-backed exchange-traded fund, stayed at the record level of 10,941.34 tonnes.

Spot silver XAG= pared early gains to steady at $28.79 an ounce, against a $28.70 close. In other metals, platinum XPT= was at $1,678.24 against $1,675.99 while palladium XPD= was at $740.50 as against $735.97.

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