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NEW YORK (Reuters) - Gold rose nearly 1 percent on Wednesday, as the dollar gave up ground to the euro following a weaker U.S. home sales report that called into question the day-earlier optimism that sent gold to a 7-week low.
"We're just following the dollar," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC in Chicago, adding that dollar losses and oil gains had stemmed some of the concerns about the euro that drove it to a 3-1/2-month low against the greenback on Tuesday.
Physical metal purchases picked up around the 7-week lows hit in the previous session, also offering support to gold.
"As the euro seems to be firming up a little bit here, and crude's turning around, we found a little bit of base stability at this point," said McGhee.
Spot gold pulled off the session high at $1,095.55 an ounce to change hands around $1,089.75 by 3:10 p.m. EST. Tuesday's late quote in New York at $1,083.55 was lower, though up from the 7-week low at $1,074.10 an ounce.
U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange settled with gains of $7.30 at $1,094 an ounce.
Gold climbed out of an early tight trading band around unchanged levels after sales of U.S. single-family homes slid to a seven-month low in November.
The dollar extended early losses against the euro after the weak housing data dented optimism about the economy established with a surge in existing home sales a day earlier.
The 11.3 percent drop in newly built U.S. home sales dealt a blow to the housing market's recovery.
Gains in crude oil prices added to dollar declines to bolster gold buying. Oil rose above $76 a barrel after key U.S. inventory data showed inventories were drawn down by more than expected in the world's top energy consumer.
McGhee said he thought gold was oversold enough to make it subject to a short-covering rally that would return it to its previous uptrend, especially amid thin holiday conditions.
"Technically, we've tried to come down, there has been a lot of hunting for stops (automatic sell orders), and I think they've taken a lot of weaker people out of the market, and there wasn't much follow-through selling," he said.
With the year-end looming and investors keen to square their positions, bullion could struggle to climb further, especially with pockets of dollar strength, traders said.
"The metal could increasingly get restricted to a narrower range as we proceed toward the year end," said Pradeep Unni, senior analyst at Richcomm Global Services.
"Book closing and weak physical demand, combined with the selling pressure building up in charts are restricting fresh investments," he said. "A year-end price closing in the range of $1,050-1,055 is quite likely."
Spot gold rose to an all-time high of $1,226.10 an ounce at the beginning of December.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,132.708 tonnes as of December 22, unchanged from the previous business day.
London's ETF Securities said holdings of its gold-backed exchange-traded products fell half a percent to 7.778 million ounces on Tuesday from 7.821 million ounces the day before.
India's spot gold prices fell for a second consecutive session on Wednesday as buyers stayed away expecting prices to fall further, dealers said. India was the world's biggest bullion consumer last year.
Spot silver edged up to $17.13 an ounce against $16.96. Platinum rose to $1,419 an ounce against $1,393, and palladium was higher at $355 against $352.50.
Among U.S. futures contracts, March silver settled with a gain of 16 cents at $17.19 an ounce, NYMEX January platinum finished $29.90 higher at $1,426.80 an ounce and March palladium was $3.10 stronger at $357.35 an ounce by the close.
Additional reporting by Jan Harvey in London; Editing by Christian Wiessner