Gold retreats as dollar rebounds, Greek debt proposal eyed

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Spot gold edged lower on Thursday as the dollar rebounded versus the euro and investors assessed the latest standoff over Greece's bailout.

Spot gold, stronger initially, fell 0.5 percent to $1,206 an ounce, erasing gains made after minutes from the U.S. Federal Reserve showed it was still hesitant about raising interest rates. U.S. gold futures for April delivery gained $7.40 an ounce to settle at $1,207.60.

Spot prices had fallen to a six-week low of $1,197.56 on Wednesday, when investors saw greater potential for a successful resolution to Greece's debt talk. Prices bounced back after minutes from January's Federal Reserve policy meeting showed concern about raising interest rates too soon.

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On Thursday, the German finance ministry rejected a new proposal from Athens for an extension of its bailout program, saying it fell short of the conditions set out by Greece's euro zone partners.

Even so, Greece's wording of a document seen by Reuters appeared to go substantially toward the position taken by euro zone finance ministers in early negotiations. That reassured bond investors a deal may not be far away.

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Failure to reach an agreement could trigger flight-to-safety bids for gold, although markets still believe a deal to keep Greece in the euro zone can be negotiated.

"It looks like Greece has got a bit of a lifeline here although the Germans aren't very happy with it ... and that's not supportive for gold," bullion broker Sharps Pixley CEO Ross Norman said.

Gold had risen after minutes from the Fed's Jan. 27-28 meeting, released on Wednesday, showed officials grappling to square solid U.S. economic growth with weakness in international markets.

The Fed has kept rates near zero since 2008 to stimulate the U.S. economy, benefiting non-interest-bearing assets such as gold. Any rate increase would lift the dollar, hurting demand for bullion.

"Bears were firmly in control until the dovish comments from the (Fed) minutes ... the market was surprised with most expecting the first of many rate (increases) in June -- this now looks to be off the table," Tony Walters, senior analyst at Deutsche Borse's MNI International, said.

Liquidity will remain thin in Asia through the week as several markets are closed for the Lunar New Year holiday.

Gold imports into top consumer India are set to jump in coming months after the central bank eased gold import curbs.