Gold drops 1 pct on strong U.S. and U.K. economic data

NEW YORK (Aug 5) - Gold dropped nearly 1 percent in quiet trading on Monday after signs of an improving British business sector and better U.S. manufacturing activities dampened bullion's appeal as an investment hedge. The metal accelerated losses after data showed growth in the U.S. services sector rebounded from a three-year low, while British businesses boomed and activity at euro zone companies expanded modestly in July for the first time in 18 months.

Monday's data came on the heels of last week's strong U.S. factory activities and a mixed U.S. nonfarm payrolls report. Gold fell nearly 2 percent last week as jittery bullion investors fretted over the timing about the Federal Reserve's planned reduction of its economic stimulus program. "In the absence of weaker-than-expected macro data, short covering activity is likely to subside, leaving gold to search for support from the physical market," said Suki Cooper, precious metals strategist at Barclays Capital. Also weighing down on gold was disheartened investment interest. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell on Friday to fresh four-year lows. Spot gold was down 0.8 percent at $1,301.01 an ounce U.S. gold futures for December delivery fell $9.60 to $1,301 an ounce, with trading volume on track to finish sharply below its 30-day average, preliminary Reuters data shows. Gold also fell as U.S. benchmark 10-year notes yield climbed as traders reduced their bond holdings on surprisingly strong data on the U.S. services sector. As gold pays no interest, the returns from U.S. bonds are closely watched by market participants as a gauge of short-term interest rate. Among other precious metals, silver fell 1.2 percent to $19.66 an ounce. Platinum eased 51 cents to $1,444.24 an ounce and palladium gained 0.3 percent to $731.50 an ounce. Prices at 11:36 a.m. EDT (1536 GMT)