UPDATE 3-Gold falls back in Europe as dollar recovers


(Adds econ data, details, fresh prices paras 2-5, 8)

LONDON, May 30 (Reuters) - Gold dipped back in Europe on Friday, with currency playing a strong role as the dollar mounted a strong comeback against the euro -- aided by stronger-than-expected U.S. economic data that also encouraged investors into stocks.

Money flowed into stocks after a report pointing to surprisingly strong manufacturing growth in the U.S. Midwest fed hopes for a strengthening economy, taking gold near to key support at $360.00 an ounce.

The National Association of Purchasing Management-Chicago business barometer rose to 52.2 from 47.6 in April. A reading above 50 signals an expanding regional manufacturing sector. Economists polled by Reuters had forecast the May index at 48.8.

Analysts said the bullion market was being driven firmly by currency, with further volatility expected as the dollar tried to swim against recent record surges by the single European currency.

"Gold remains in the hands of the FX market and the extreme volatility of the euro/dollar is causing headaches to gold traders as well as their FX colleagues," John Reade of UBS Warburg said in a daily report.

Spot gold was at $361.30/362.05 at 1502 GMT, having risen to within a whisker of $370 overnight as the euro ran towards its highs against the dollar, making gold cheaper for holders of currencies other than the greenback.

It was set or "fixed" in the afternoon at $361.40.

Bullion was last quoted at $368.70/369.45 in New York.

Dealers said gold's sharp spike higher overnight was driven by funds, and they expected the market to continue ultimately higher, despite Friday's losses.

"If you take a slightly longer view, the market believes that the ultimate direction of this market is higher. That isn't to say that it's going to go there in one horny straight move, but that essentially we're going to work higher," said Peter Hillyard, head of European metals sales at ANZ Investment Bank.


Technical analysts expected gold to continue steering a choppy course in coming sessions, with movements largely hinged on currency developments.

Gold has moved erratically this week, with movements in the foreign exchange market sending bullion as high as $375 -- a 15-week high -- before profit-taking dragged it as low as $358.50.

"Expect the volatility to continue over the coming sessions," Scotia Mocatta said in a daily report, placing support at $361.00 to $359.00.

Volatility could also be heightened by the absence of several market participants next week for the London Bullion Market Association conference in Lisbon.

Gold typically thrives in times of uncertainty, feeding off a weaker dollar, worries over the health of the global economy and the destabilising effects of conflict in the Middle East.

The euro was quoted at $1.1761/64, compared with $1.1900/04 in late U.S. trade.

Silver fell to $4.52/54 an ounce from $4.56/58 last quoted in New York.

Platinum regained some composure after diving by more than $30 on Thursday on stop-loss selling by Japanese investors and hedge funds.

It was quoted at $640.00/645.00 an ounce, against New York's last $638/643.

Palladium nudged up slightly to $180.00/186.00 from $178.00/185.00.



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