Gold flat after South Korea buy

A gold bar carrying the Euro sign is seen during the European Central Bank's Euro Exhibition organised by the Romania's Central Bank in Bucharest March 10, 2011.

SINGAPORE (Reuters) - Gold was flat in early trade on Tuesday, supported by the gold purchase by South Korea's central bank, while investors watched the outcome of a vote on the debt deal.

South Korea's central bank said it bought 25 tons of gold between June and July to diversify its foreign reserves despite high prices, its first purchase in more than a decade, boosting its total gold holdings to 39.4 tons.

"This news reiterates the fundamental view that most investors, asset managers, and even central banks hold true - that gold remains the quintessential currency hedge, a stabilizing asset for portfolios, and a safe haven in uncertain economic times," said David Meger, director of metals trading at Vision Financial Markets, a futures broker based in Chicago.

Market reaction to the news was muted, as investors continued to focus on the U.S. debt ceiling deal, which is headed toward the congressional vote.

The most-active COMEX gold was little changed at $1,621.10 by 2228 GMT.

Spot gold was flat at $1,618.29.

"The Bank of Korea purchase is absolutely no surprise, because in the past two to three years we always heard that Asian central banks had been buying gold," said a U.S.-based trader.

"It is positive for the market, but more for long-term bulls."

Gold is expected to trade sideways during the day when investors weigh the outcome of the U.S. debt deal vote against the latest poor economic data, the trader added.

U.S. manufacturing grew at its slowest pace in two years in July as new orders contracted, casting doubt on expectations the faltering recovery would quickly regain steam.

The dollar rose nearly 0.6 percent against a basket of currencies .DXY, adding pressure to bullion. <USD/>

(Reporting by Rujun Shen Editing by Clarence Fernandez)