* Better U.S. economic data prompt profit-taking
* Selling picks up on break of key technical levels
* Investment demand weak, SPDR Gold ETF holdings down
* Coming up: U.S. personal consumption on Friday (Adds comment, updates market activities)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, March 27 (Reuters) - Gold dropped about 1 percent on Thursday, breaking below $1,300 an ounce for the first time since mid-February, as encouraging U.S. economic growth in the fourth quarter diminished the metal's appeal as a hedge.
A stronger dollar and technical weakness after bullion broke through psychological support at $1,300 an ounce and its 200-day moving average at $1,296 an ounce also triggered selling, traders said.
The U.S. economy grew a bit faster than previously estimated in the fourth quarter and new claims for jobless aid dropped to a near four-month low last week, suggesting the economy has plenty of momentum to break out of its winter chill.
"Gold is under pressure after the strong GDP report fuelled anticipation of higher economic activities in the second and third quarter," said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC.
Spot gold was down 0.9 percent at $1,291.56 an ounce by 3:06 p.m. EDT (1906 GMT), having earlier hit $1,288.80, which was a six-week low.
U.S. COMEX gold futures for April delivery settled down $8.70 at $1,294.70 an ounce.
Trading volume was about 65 percent above its 30-day average, largely boosted by the April-June rollover ahead of the April contract's first-notice day on Monday.
Holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, fell for a second straight session, down 1.8 tonnes to 816.97 tonnes on Wednesday. That has cut its net inflow for the year to 18.8 tonnes.
So far this week, the metal was down about 3.2 percent. It hit a six-month high at $1,391.76 earlier in March on geopolitical tensions.
Analysts said that gold's recent rally, which was based on a weaker U.S. growth outlook, was overdone, particularly with the unusually cold weather hurting economic activities earlier this year.
Bullion has been under pressure after Federal Reserve Chair Janet Yellen said last week that rates could start rising early next year, raising the opportunity cost of holding non-yielding bullion.
"The tapering extension at the last Federal Reserve meeting seemed to start the rot in gold, and refocus people's minds on the fact that the U.S. economy is actually doing pretty well," Citi analyst David Wilson said.
Among other precious metals, silver edged down 0.2 percent to $19.65 an ounce.
Platinum fell 0.4 percent to $1,396 an ounce, while palladium was down 2.7 percent at $754.75 an ounce as investors took profit after a recent rally on supply worries in South Africa.
3:06 PM EST LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL US Gold APR 1294.70 -8.70 -0.7 1289.60 1307.60 171,130 US Silver MAY 19.708 -0.072 -0.4 19.575 19.870 31,528 US Plat APR 1397.20 -9.30 -0.7 1394.30 1415.80 11,715 US Pall JUN 760.50 -20.65 -2.6 756.35 782.20 7,769 Gold 1291.56 -11.93 -0.9 1288.80 1306.65 Silver 19.650 -0.030 -0.2 19.600 19.840 Platinum 1396.00 -5.50 -0.4 1395.50 1412.25 Palladium 754.75 -21.25 -2.7 758.00 778.50 TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 304,866 186,893 186,756 17.22 0.11 US Silver 35,160 54,128 58,370 26.25 0.13 US Platinum 29,738 16,851 13,528 19.48 0.30 US Palladium 8,058 7,216 5,753 27.79 -0.86 (Editing by William Hardy, Cynthia Osterman and Paul Simao)