PRECIOUS-Gold nears 4-month low; set for worst week since June
* Gold to retest support at $1,631 - technicals
* Iraq boosts gold reserves, 1st time in years -IMF
* Coming up: CFTC commitment of traders data; 1930 GMT
LONDON, Dec 21 (Reuters) - Gold was mired near a 4-month low on Friday and set for its steepest weekly loss since June, with investors turned off by a weaker euro and stalled U.S. budget talks.
Bullion stood at $1,645.17 per ounce by 1100 GMT, having earlier hit a low of $1,635.24 and just shy of a four-month low of $1,635.09 touched in the previous session.
U.S. Comex February gold futures were flat at $1,646.40 after hitting a low around $1,636.
Both spot gold and U.S. futures are on track for a fourth straight weekly drop and have so far shed about 3 percent - the steepest fall since late June.
Gold initially rose before losing strength on Thursday after House of Representatives Speaker John Boehner failed to unite his Republican lawmakers behind a bid to extract concessions from President Barack Obama in "fiscal cliff" talks.
The latest development casts more uncertainty on talks to avoid across-the-board tax hikes and spending cuts that could push the U.S. economy into recession in 2013. In theory, such an outcome could lift gold's safe-haven status, but that is not certain, given the market's erratic performance during talks.
"Nervousness over the fiscal cliff is possibly keeping some investors on the sidelines, as it is unclear how gold will react to the ongoing fiscal cliff talks," said Mitsubishi analyst Matthew Turner.
UBS said in a note, "Gold's break of the 200-day moving average around $1661 on Thursday spooked a lot of market participants and accelerated the selloff. The technical picture doesn't look great and neither does sentiment."
Asian shares slid on Friday after the Republican proposal to deal with the U.S. fiscal crunch failed to get enough support.
But the White House pledged on Thursday to work with Congress, saying that President Barack Obama was hopeful a deal could be reached quickly.
GOLD PRICE SET FOR ANNUAL GROWTH
Despite the recent sell-off, gold is up about 5 percent for the year and set for a twelfth straight annual growth driven by rock-bottom interest rates, concerns over euro zone financial stability and diversification into bullion by central banks.
Iraq made its first major move in years to boost its gold reserves in recent months, joining central banks from emerging market economies such as Brazil and Russia in diversifying its foreign reserves.
Lower gold prices spurred buying in the physical market, keeping premiums steady at $1 to $1.10 an ounce above London prices.
"Definitely, there's physical buying. It's from all over the place. Physical dealers are buying," said a physical trader in Singapore.
Among other precious metals, silver was down 0.1 percent at $29.91 an ounce. It has underperformed gold this week to fall 7.2 percent and is on track for its biggest monthly drop since May.
Spot platinum was flat at $1,544.74 an ounce, while spot palladium was down 1 percent at $670.5 an ounce. Palladium has been the best performer of the precious metals so far this quarter, up 5.9 percent.