Gold drops below $1,100/oz as U.S. data disappoints

Gold bars are displayed to be photographed at bullion house in Mumbai December 3, 2009.

NEW YORK/LONDON (Reuters) - Gold dropped for a second straight day on Wednesday, settling below $1,100 as data showing a sharp fall in U.S. new home sales hit sentiment among bullion investors.

Investors reduced exposure to gold as the dollar cut losses against the euro after the weak U.S. housing data. Also, Federal Reserve Chairman Ben Bernanke offered a somber assessment of the U.S. economy.

"Failed rallies of the euro have gotten gold investors a bit skittish, and there is a flight to quality back into the dollar," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Spot gold was $1,094.20 at 3:27 p.m. EST (2027 GMT), against $1,102.95 late in New York on Tuesday. Earlier, the metal hit its weakest since February 12 at $1,089.45 an ounce after a break of key resistance levels just below $1,100 an ounce prompted selling.

Bullion, traditionally seen as a safe haven in times of economic uncertainty, has been moving in tandem with asset classes perceived as riskier, including equities and other commodities such as oil.

S.AFRICAN POWER ISSUE BOOSTS PGMS

A drop in bullion prices spurred some buying in parts of Asia, but main consumer India was on the sidelines. A lack of activity in China after the Lunar New Year holidays also put pressure on premiums. <GOL/AS>

The China Daily reported on Wednesday that China was unlikely to buy 191.3 tonnes of gold being offered for sale by the International Monetary Fund.

Silver was at $15.85, up slightly from $15.82 an ounce. Platinum at $1,504 an ounce, down from $1,510 and palladium slipped to $419.50 from $428.50.

South Africa's power regulator granted state-owned utility Eskom a 24.8 percent tariff increase for the 2010-11 financial year, falling short of the power firm's request for a 35 percent hike.

South Africa is the world's biggest platinum producer and one of the leading miners of palladium and gold.

"(This) will make mining in South Africa a bit more expensive, but in the long run it will make it more reliable as well," said one European platinum group metals trader.

(Reporting by Frank Tang in New York and Jan Harvey in London; Editing by David Gregorio)