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Gold hits 2-1/2 week high as German data lifts euro

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Gold hit 2-1/2-week highs on Wednesday, rising for the sixth straight session as upbeat German sentiment data helped drive the euro higher against the dollar, and as expectations for an imminent U.S. interest rate rise receded.

The euro was up 0.4 percent versus the U.S. currency after a survey on German business morale fueled expectations that a euro zone economic recovery is strengthening, extending gains after U.S. durable goods data missed expectations.

Spot gold was up 0.2 percent at $1,195 an ounce, having earlier touched its highest since March 6 at $1,199.70. U.S. gold futures for April delivery settled up $5.60 an ounce, or by .5 percent, at $1,197.

"(Gold is) grinding higher as traders are reluctant buyers at this stage ... driven by lower bond yields and the current dollar wobble,'' Saxo Bank's head of commodity research Ole Hansen said.

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Gold's six-day rally, its longest since August 2012, came after Federal Reserve chair Janet Yellen sounded a cautious note last week on the U.S. economy and potential interest rate increase.

"This is a long overdue correction for gold and I think it's going to continue to hit in the $1,200 level,'' said Eli Tesfaye, senior market strategist for RJO Futures in Chicago.

"The market is also eyeing Dr. Yellen's speech Friday.''

Yellen is scheduled to speak on Friday at 1945 GMT.

Gold prices had been hurt by expectations for a near-term rate hike, which would lift the opportunity cost of holding non-yielding bullion while boosting the dollar. Gold is highly sensitive to moves in the U.S. currency, in which it is priced.

"A break over the 1.10 euro/dollar level will encourage buyers to test and possibly break the $1,200 price point (in gold),'' Kitco Metals Inc said in a note on Wednesday.

Physical gold demand in Asia, which supported the market when prices were around $1,145-$1,155, is looking sparse at current levels and is not providing the cushion seen previously, precious metals house MKS said in a note on Wednesday.

"Further, it feels that this demand is not likely to re-emerge in any meaningful quantities until prices get back around $1,170-$1,175.''