* Washington may be nearing deal to resolve debt crisis
* Premiums in India, China rise, demand picks ups (Updates prices, adds comment, NEW YORK dateline and byline)
By Josephine Mason and Clara Denina
NEW YORK/LONDON, Oct 16 (Reuters) - Gold was flat to slightly lower on Wednesday as U.S. lawmakers closed in on a deal to avert a U.S. default on its debt and re-open government, further erasing bullion’s appeal as a safe-haven asset.
Losses were limited as physical buying in Asia and the United States emerged after prices sank to three-month lows on Tuesday.
That has created a “short-term floor” for bullion even as the debt crisis appears almost over, said Paul Sacks, principal gold trader at Aurum Options Strategies in New York.
Prices held up even after U.S. Senate leaders announced a deal to end the political crisis that partially shut down the federal government and brought the world’s biggest economy close to a debt default.
Most selling had been done as investors expected a deal to come through before the Oct. 17 deadline, when the U.S. Treasury’s borrowing authority runs out, dealers said.
“People have already pre-positioned themselves over the last couple of days before the budget deal finally goes down,” said Scott Lookabaugh, senior broker at Great Pacific Wealth Management.
Even so, investors piled into U.S. equities, which rallied close to all-time highs, and the dollar on news of a deal, which must still be approved by vote in the Senate and the House of Representatives.
Spot gold was down 60 cents, or 0.05 percent at $1,279.64 an ounce at 3:58 p.m. EDT (1958 GMT) after recovering from an intraday low of $1,268 earlier in the session.
Analysts see technical support around July lows, between $1,235 and $1,240.
U.S. gold futures for December settled at $1,282.3 an ounce, up $9.1 or 0.7 percent, lifted by physical demand.
Gold has fallen about 4 percent since the government shutdown began on Oct. 1, disappointing investors who had hoped that uncertainty over the U.S. economic situation could spur safe-haven bids.
Instead, prices have been hurt by large sell orders, amplified by technical selling, over the period.
The last time that high tension emerged over talks to lift the U.S. debt ceiling in 2011, gold hit record highs. This year, sentiment towards bullion is much less positive.
While ending the stalemate in Washington has hurt investors’ appetite for safe-haven gold, any deal struck this week would only “kick the can down the road”, potentially leading to fresh problems next year, said Sacks.
“People are waiting to see what will win out,” he said.
The metal has lost nearly a quarter of its value this year on expectations the Federal Reserve will soon end its stimulus programme, which has kept interest rates low and stoked inflation fears.
Some dealers were relieved to see a flurry of physical demand overnight after prices had plunged to $1,251.66, their lowest since July 10, as lawmakers neared an agreement.
A tentative return of retail investors quelled concerns that physical demand for coins and jewelery had evaporated after a burst of buying earlier in the year.
Premiums - the best way to measure demand - rose in Asia, while demand for U.S. coins has surged so far this month.
Gold premiums in India, the world’s biggest buyer of the precious metal, hit a record $100 an ounce due to a shortage of supplies to meet festival demand.
In China, premiums in the Shanghai Gold Exchange climbed to more than $20 an ounce from about $7 two weeks earlier.
In other precious metals, silver was flat at $21.35 an ounce.
Platinum group metals were buoyed by hopes that a deal would prevent damage to industrial demand for materials used in the automotive sector.
Spot platinum rose 1.1 percent to $1,393 an ounce, and spot palladium gained 1.35 percent to $715 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; editing by Jane Baird, James Jukwey and Andrew Hay)