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COMEX gold limps lower early as stocks, dollar gain

NEW YORK, July 29 (Reuters) - COMEX gold futures edged lower Monday morning after Friday's free-fall to three-month lows as U.S. equities opened higher and the dollar extended the its gains, traders said.

Most-active December futures at the New York Mercantile Exchange were down 40 cents at $304.70 an ounce, in an early range of $305.60 to $303.50.

Spot gold > traded at $302.90/3.40 an ounce. Monday's morning fix in London was $303.05, its lowest since April 23.

U.S. stocks traded sharply higher on Monday as investors waded back into equities to hunt for bargains after mistrust following accounting issues sent the market to a five-year low. The Dow Jones industrial average rose 175 points to 8,439, the broader S&P 500 index gained 19 points to 872 and the Nasdaq rose 31 to 1,293.

That pushed the U.S. dollar up against the euro and the yen , which curbed interest in buying gold from overseas dealers.

Speculative funds sold many of their long positions in the safe-haven investment asset Friday as the stock market edged into positive territory and the dollar reclaimed its dominant position against the yen and euro. A drop in gold and silver mining company shares fueled Friday's sell-off.

But the selling in gold started earlier in the week, even with equity markets at times favoring negative territory.

"This atypical response by gold prices was linked to long liquidation by investment funds and efforts to meet margin calls in the equity markets, along with lower gold equity values and a steadier U.S. dollar," David Rinehimer, head of futures research at Salomon Smith Barney, said in a market comment.

Floor dealers said the liquidation, which took December futures down more than 6 percent last week, had been accompanied by some fresh short selling as well.

After Friday's close, CFTC Commitments of Traders data showed a slight increase in COMEX gold speculative net-long positions as of July 23. The funds held 26,238 net long contracts, while small speculators were net long by 40,715 lots as of last Tuesday.

But after the hefty speculative sell-off, dealers and analysts believed the net long standing became significantly smaller by Friday's close.

IFR Pegasus analyst Tim Evans commented it might take a few weeks for funds to get back to a neutral posture where the market could regroup and maybe attempt to push higher, though there was the risk funds could swing directly to the short side.

The market may find support at the $298.10 to $300 zone that supported the market in April, but it could also probe the $288.70 lows from March, even within the context of a long-term up-trend, Evans said.

Gold futures hit a 2-1/2 year high at $331.50 at the start of June, but failed to regain that level as a rally early last week faltered above $326, basis the COMEX August contract.

Silver inched lower with gold after suffering massive losses on selling last week. The market topped out at $5.15 on July 15, and subsequent liquidation led to a technical break below $4.80 support on Friday.

COMEX September silver futures were down 2.0 cents at $4.645 an ounce, trading $4.695 to $4.625.

Spot silver eased to $4.63/65 from Friday's close at $4.665/4.685. It was fixed Monday at $4.65 its weakest mark since May 17.

The latest CFTC data showed funds net long silver by 26,238 positions, while small specs were net long by 40,715.

NYMEX October platinum dipped $2.20 to $521 an ounce. Spot platinum traded at $524/532 an ounce.

September palladium futures lost $1.45 to $333 an ounce. Spot palladium was at $327/335.