* Spot gold edged up 0.1 percent to $1,070.60 an ounce by 0036 GMT, after gaining about 1 percent in the past two sessions.
* U.S. manufacturing contracted in November for the first time in three years, sending the dollar sliding from an 8-1/2 month high reached on Monday.
* The weakness in the dollar provided some support for the greenback-denominated gold and an opportunity for investors to cover short positions. Hedge funds and money managers are holding a record net short position in COMEX gold contracts, data on Monday showed.
* Bullion fell to a near-six-year low last month and posted its biggest monthly drop in 2-1/2 years in November as investors believed higher rates could weaken demand for non-interest-paying bullion.
* The U.S. dollar nursed broad losses early on Wednesday, having retreated from a multi-month peak as bulls got cold feet after U.S. manufacturing contracted in November for the first time in three years.