Gold inches higher on short covering, weak U.S. data

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Gold ticked up for a third session on Wednesday, buoyed by short covering following a dip in the dollar and soft U.S. manufacturing data.

FUNDAMENTALS

* 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.

* Despite the recent gains, the outlook for gold remains bearish due to a looming U.S. rate hike.

* The Federal Reserve is widely expected to raise U.S. rates this month for the first time in nearly a decade.

* 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.

MARKET NEWS

* U.S. stocks closed higher on Tuesday despite mixed U.S. economic data as treasury yields and the dollar declined while oil prices were choppy ahead of an OPEC meeting later this week.

* 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.