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Gold recovers losses on pessimism over Fed rate hike

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Gold rose on Tuesday, recovering an earlier 1 percent slide on expectations the Federal Reserve will not lift U.S. interest rates this year, which helped push the dollar to three-week lows against the euro.

Chinese trade data reinforced views that the world's second-largest economy continues to lose momentum, but healthcare stocks kept Wall Street afloat.

Spot gold was up 0.3 percent at $1,167.86 an ounce, off an earlier low of $1,151.16, and below Monday's three-month high. U.S. gold futures for December delivery settled up 90 cents an ounce at $1,165.40.

"Prices at $1,150-1,160 are based mainly on pessimism over how soon the Fed is going to hike rates," Natixis analyst Bernard Dahdah said. "Some of the larger banks have said it will probably be taking place next year, so I can see prices at these levels (for a while)."

Gold has rallied nearly 5 percent since a surprisingly weak U.S. nonfarm payrolls report on Oct. 2 prompted the market to shift expectations of a Fed rate hike to 2016.

The metal, as a non-interest-paying asset, benefited from ultra-low interest rates following the financial crisis, but fell to 5-1/2 year lows this year on expectations that U.S. rates would rise for the first time in nearly a decade.

The Fed will hold two more policy meetings in 2015, on Oct. 27-28, and then in December.

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In one of the strongest defenses yet of a go-slow approach to rate policy, Fed Governor Lael Brainard said on Monday that the U.S. central bank should hold off on any rate hike until it is clear that a global slowdown, trouble in China and other international risks will not push the U.S. recovery off course.

On the physical markets, gold discounts in India widened to a three-month high this week while buying elsewhere in Asia was also lackluster.

MKS said in a note on Tuesday that gold and silver were initially dragged lower by platinum overnight in Asia, though they briefly rebounded prior to the opening of the Shanghai Gold Exchange.

In other precious metals, platinum and palladium remained lower, with platinum down 0.6 percent at $986.75 an ounce and palladium down 1.5 percent at $680 an ounce.

"Those are markets that were slightly over-extended. That's profit taking," said Eli Tesfaye, senior market strategist for brokerage RJO Futures.

Silver was up 0.5 percent at $15.90 an ounce.