PRECIOUS-Gold extends gains into 3rd session, China demand aids

* Gold continues rebound from 3-year low of $1,180.71
* Short covering after biggest ever quarterly drop also
helps
* Gold bar premiums in Hong Kong steady
* SPDR holdings at lowest since early 2009

(Updates prices)
By A. Ananthalakshmi
SINGAPORE, July 2 (Reuters) - Gold inched up on Tuesday,
stretching its gains into a third straight session as buyers in
China continued to snap up deals after bullion's plunge to a
three-year low last week.
Prices were also helped by short covering that kicked in
after gold logged its biggest ever three-month loss in the
second quarter ended June on indications of an early wind down
of the U.S. Federal Reserve's stimulus measures.
"We can see some stock loading in the market and physical
buying in Shanghai," said a trader in Hong Kong.
"However, fundamentals are still bearish and we will test
the upside at $1,270."
Spot gold rose 0.35 percent to $1,257.24 an ounce by
0624 GMT, while U.S. gold rose about $2 to $1,257.4.
Shanghai futures rose for a second straight day
after nine consecutive declines. They were trading at over $30
premiums to spot prices.
Bullion, typically seen as a hedge against inflation, has
taken a beating since Fed Chairman Ben Bernanke said last month
the economy was recovering strongly enough for the central bank
to begin tapering its $85 billion monthly bond purchases in the
next few months.
Gold plunged 22 percent in the second quarter and is headed
for a 25 percent drop this year, its biggest decline since 1981.
It fell to $1,180.71 last week, its lowest since August 2010.
Spot gold is expected to end its current rebound at or below
$1,273 per ounce, according to Reuters technical analyst Wang
Tao.
Physical demand has not come to the rescue of gold as it did
in April when prices fell the most in 30 years.
In Hong Kong, gold bar premiums over London prices remained
at the same levels as last week, indicating that demand has not
picked up strongly, dealers said.
Mixed U.S. economic data on Monday added to uncertainty over
the exact timing of the Fed's tapering.
U.S. manufacturing expanded last month, rebounding from an
unexpected contraction in May, and construction spending neared
a four-year high in May. However, hiring in the manufacturing
sector was the weakest in nearly four years.
A more important jobs report, the U.S. nonfarm payrolls, is
expected to be released on Friday.
SPDR Gold Trust, the world's largest gold
exchange-traded fund, said its holdings fell 0.12 percent to
968.30 tonnes on Monday - its lowest since February 2009.

Precious metals prices 0624 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1257.24 4.44 +0.35 -24.92
Spot Silver 19.65 0.09 +0.46 -35.11
Spot Platinum 1375.51 1.01 +0.07 -10.39
Spot Palladium 684.97 0.47 +0.07 -1.02
COMEX GOLD AUG3 1257.40 1.70 +0.14 -24.97 20389
COMEX SILVER SEP3 19.65 0.07 +0.37 -35.16
Euro/Dollar 1.3062
Dollar/Yen 99.81

COMEX gold and silver contracts show the most active months

(Editing by Himani Sarkar)