Gold drops on strong US and UK economic data

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Gold dropped nearly 1 percent in quiet trading on Monday after signs of an improving British business sector and better U.S. manufacturing activities dampened bullion's appeal as an investment hedge.

The metal accelerated losses after data showed growth in the U.S. services sector rebounded from a three-year low, while British businesses boomed and activity at euro zone companies expanded modestly in July for the first time in 18 months. Monday's data came on the heels of last week's strong U.S. factory activities and a mixed U.S. nonfarm payrolls report.

Gold fell nearly 2 percent last week as jittery bullion investors fretted over the timing about the Federal Reserve's planned reduction of its economic stimulus program.

"In the absence of weaker-than-expected macro data, short covering activity is likely to subside, leaving gold to search for support from the physical market," said Suki Cooper, precious metals strategist at Barclays Capital.

Also weighing down on gold was disheartened investment interest. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell on Friday to four-year lows.

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On Monday, Spot gold was last down 0.7 percent at nearly $1,302 an ounce. U.S. gold futures for December settled down 0.6 percent at $1,302.40 an ounce, its lowest price in more than two weeks.