PRECIOUS-Gold firms as U.S. budget talks lift European stocks
* Gold finds support from strong stock markets
* Bank of Japan monetary easing set to lend support
* India hikes import duty on gold to 6 pct (Updates prices)
By Clara Denina
LONDON, Jan 21 (Reuters) - Gold rose on Monday as stock markets rose towards two-year highs on political moves to break a budget impasse in the United States and the euro steadied as the first euro zone finance ministers' meeting of the year got underway.
Expectations that the Bank of Japan will deliver bold monetary easing also provided support, but the absence of U.S. players, away for the Martin Luther King public holiday, kept the market in a range below the key $1,700 level, analysts said.
Spot gold was bid up 0.4 percent at $1,689.55 an ounce at 1956 GMT, extending gains after a 1.3 percent rise last week, its biggest one-week rise since late November.
U.S. gold futures for January delivery were up $1.20 an ounce at $1,687.80 in electronic trading.
"In the past few days we have seen gold rally when there is risk appetite as well," Societe Generale analyst Robin Bhar said. "Obviously, the euro/dollar trade is likely to be a driving force in coming days, but I think (gold) will struggle to get through $1,700."
Gold players mirrored European equity movements as euro area finance ministers met in Brussels, with talks on debt-stricken Spain, Ireland, Portugal and Greece on the agenda.
Signs of progress in U.S. debt ceiling talks helped underpin gold, as these also lifted stocks.
The Federal Reserve's policy meeting next week will provide clues on the central bank's attitude towards monetary stimulus. Any indication of withdrawal of the policy could hurt bullion.
The Japanese central bank's policy meeting ending on Tuesday was also monitored. The BoJ is expected to consider making an open-ended commitment to buy assets until a 2-percent inflation target is reached.
Monetary stimulus from central banks helped gold extend its bull run into a 12th year in 2012, with investors fleeing to hard assets on worries that rampant cash printing would prompt currency debasement.
"Generally easing policies are positive for gold as it is part of the whole accomodative environment from global central banks," UBS analyst Joni Teves said.
INDIA HIKES GOLD IMPORTS TAX
Gold prices in India rose as the market factored in the finance ministry's decision to raise the import tax on gold to 6 percent from 4 percent, which will raise the cost of bringing metal into the country.
But analysts were still unsure on how the tax hike would impact future demand.
"News of the hike in imports duty in India will influence the gold market in coming days but it's not very clear if this will result in a sharp fall in demand again, or if the move had already been priced in," Daniel Briesemann, analyst at Commerzbank, said.
The upcoming Lunar New Year festivities in Asia, particularly China, which is vying with India to become the world's top gold consumer, have lifted physical gold demand since the start of the year.
Prices of the platinum group metals (PGMs) eased from last week's multi-month highs made on supply disruptions in South Africa and a brighter outlook for the world's economy.
Spot platinum was last bid at $1,673.49 an ounce, up 0.4 percent, after hitting a three-month high of $1,701.50 on Thursday. It has lost a premium over gold that it had regained last week for the first time since March.
Spot palladium, which rose to a 16-month high of $730.47 in the previous session, eased 0.3 percent to be bid at $715.00.
"For prices to extend their gains, other than an escalation of supply disruptions, demand would need to firm, albeit given the mine closures, a more modest recovery in demand would now be required," Barclays analyst Suki Cooper said in a note.
Spot silver rose 0.3 percent to $31.99, having hit a one-month high of $32.11 last week. Silver net long positions gained 6.8 percent to 22,300 contracts in the week to 15 January, according to data from the U.S. Commodity Futures Trading Commission. (Additional reporting by Robert Campbell; Editing by Chizu Nomiyama)