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PRECIOUS-Gold falls 1 pct as Fed tapering weighs, China demand fades

Clara Denina
Thursday, 30 Jan 2014 | 6:39 AM ET

* Fed cuts bond purchases to $65 bln a month

* Chinese premiums fall to $4/ounce; volumes thin

* South Africa's union reject Amplats wage offer

(Updates throughout, changes dateline from SINGAPORE)

LONDON, Jan 30 (Reuters) - Gold fell around 1 percent on Thursday as the dollar rose after the U.S. Federal Reserve pushed ahead with reducing its monetary stimulus and investors took profits made the previous session.

The Fed trimmed its monthly bond-buying programme by another $10 billion as it stuck to a plan to wind down its extraordinary economic stimulus, despite recent turmoil in emerging markets. It announced a similar cut in December.

"There is no surprise in the fact that tapering has continued," Mitsubishi analyst Jonathan Butler said.

"And barring any major change in the U.S. macroeconomic situation, we are still of the view that by the end of the year we are likely to see tapering completely wound up or getting close to that, which is going to weigh on gold in the next few months."

Spot gold was down 1 percent to $1,255.20 an ounce by 1054 GMT, while U.S. gold futures for February delivery were down $7.70 at $1,254.70 an ounce.

Prices gained nearly 1 percent on Wednesday, when analysts said the Fed's move to taper had already been fully discounted ahead of the announcement, while the central bank's failure to address economic uncertainty was also seen as potentially benefitting safe haven assets like gold.

But tapering is generally deemed negative for gold, which thrived when quantitative easing measures were introduced during the credit crunch years as ample central bank liquidity and a low interest rate environment encouraged investors to put money into non-interest-bearing assets.

Gold dropped 28 percent last year on an improving economy, and in anticipation of the Fed scaling back on its stimulus.

The dollar's strength versus a basket of currencies was also deterring further gold gains, with more weakness likely in store if U.S. growth data in the next few sessions beats expectations.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, saw a rare inflow of fresh investment on Wednesday with holdings increasing by 2.10 tonnes to 792.56 tonnes. But that figure is still near a five-year low.

CHINA SUPPORT FADES

Support for gold prices from Chinese buying was likely to weaken with the Lunar New Year holiday staring on Jan. 31, analysts said.

Volumes traded on the Shanghai Gold Exchange were just 1.5 tonnes on Thursday, compared with Wednesday's 8.4 tonnes and Tuesday's 14 tonnes.

And premiums for 99.99 percent purity gold fell to $4 an ounce on very thin volumes. They were as high as $20 earlier this month.

Bullion purchases from the mainland were strong in the run up to the holiday as gold is often bought for good fortune.

"The strong buying interest from China seen in the first weeks of January looks set to abate after the New Year festivities," Commerzbank analysts said in a note, adding that prices could come under more pressure in the near term.

In other precious metals, platinum fell 0.8 percent to $1,396.50 an ounce, drawing no benefit from news that South Africa's AMCU union rejected a 9 percent wage offer from leading world platinum producer Anglo American Platinum, prolonging a week of industrial action that has hit around 40 percent of the global supply of platinum.

Silver fell 1.5 percent to $19.44 an ounce, and palladium rose 0.3 percent to $713.75 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Keiron Henderson)