* Gold steady after 2.6 percent drop overnight
* Physical demand ticks up on lower prices
* Technicals point to more price falls
(Adds dealer's quotes, updates prices) SINGAPORE, Dec 3 (Reuters) - Gold traded near a five-month low on Tuesday as strong U.S. economic data stoked fears of an early end to the Federal Reserve's monetary stimulus, and the metal appeared vulnerable to further declines as more data is due this week. Spot gold slid 2.6 percent on Monday - its biggest one-day fall in two months - after data showed a gauge of U.S. factory activity hit a 2-1/2-year high in November and construction spending increased solidly in October. The strong data could bring the Fed a step closer to scaling back its $85 billion in monthly bond purchases that have boosted gold's appeal as an inflation hedge. Markets fear the tapering could begin as early as this month when the U.S. central bank holds its policy meeting on Dec. 17-18. Physical demand picked up on Tuesday due to lower prices but did not match the levels seen during earlier price drops this year, dealers said. "No one wants to make big bets towards the end of the year, especially when people are still cautious about when quantitative easing will end," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. "This is making people sell out of gold and invest in the stock market. And liquidations in exchange-traded funds have not stopped, so this is also hurting sentiment." Spot gold edged up 0.2 percent to $1,221.91 an ounce since early July, and also dragged silver lower by more than 4 percent. Data on U.S. GDP and nonfarm payrolls is set to be released later this week and could further give clues about the strength of the economy, which has shown resilience despite a partial U.S. government shutdown in October. With a recovering economy and a stronger dollar, investors have been shifting money to equities. The top eight ETFs backed of about 680 tonnes so far this year. Gold has lost about 27 percent of its value so far this year.
PHYSICAL DEMAND Dealers said physical buying in Asia increased on Tuesday due to the sharp overnight drop in prices but many consumers were still on the sidelines as they expected prices to go lower. In China, the largest buyer of bullion, premiums of 99.99 percent purity gold climbed to $11 an ounce from $7 on Monday, but still far short of the $30-$40 levels seen in April-May. U.S. Mint sales of American Eagle silver coins in November fell 27 percent year-on-year, while the Perth Mint's sales of gold bars and coins fell by nearly a third in the same period.
PRICES AT 0402 GMT
Metal Last Change Pct chg YTD pct chg Spot gold 1221.91 2.25 0.18 -27.03 Spot silver 19.19 0.06 0.31 -36.62 Spot platinum 1343 5.25 0.39 -12.51 Spot palladium 710.25 1.5 0.21 2.64 Comex gold Dec3 1221.5 -0.4 -0.03 -27.11 Comex silver Dec3 19.24 -0.049 -0.25 -36.52 Euro 1.3533 DXY 80.956
COMEX gold and silver contracts show the most active months
(Editing by Richard Pullin and Muralikumar Anantharaman)