PRECIOUS-Gold bounces on physical buying, off 7-mth low

* Gold to drop to $1,554.49 -technicals 
    * Coming Up: U.S. Dallas Fed manufacturing index; 1530 GMT

 (Updates prices, adds comments on COMEX)
    By Lewa Pardomuan
    SINGAPORE, Feb 25 (Reuters) - Gold recouped early losses on
Monday on firmer equities and after last week's drop to a
7-month low spurred physical buying in Asia, but investors were
cautious ahead of the outcome of an unpredictable election in
Italy and its impact on the euro zone.
    Investors shrugged off slower growth in China's
manufacturing sector in February, which is unlikely to change 
expectations the world's second-largest economy is enjoying a
gentle recovery. 
    Gold rose $5.04 an ounce to $1,585.34 by 0724 GMT
after posting modest gains on Friday. It hit a seven-month low
of $1,554.49 on Thursday after minutes from the U.S. Federal
Reserve's latest policy meeting triggered worries the central
bank might stop or slow its bond buying programme.
    "After the drop, hopefully the worst is over for gold,
although the support is still at $1,527. I believe (after) a
break above $1,585, you might see a trend that it should test
$1,600," said Brian Lan, managing director of GoldSilver Central
Pte Ltd in Singapore.
    The euro bounced from a six-week low around $1.3145,
but further upside may be limited as investors eye the vote in
Italy, where exit polls will be published shortly after 1400 GMT
on Monday. 
    An unstable government in Italy could cause another crisis
of confidence in the European Union's single currency. Gold
struck a record of around $1,920 in September 2011, when a
worsening debt crisis in Europe ignited a buying rush.
    
    "We've seen buying from China, and we can say it's from the
investment side and the jewellery sector. People in Asia are
still buying gold," said a physical dealer in Hong Kong.
    "Premiums are still steady at $1.70. There could be some
buying from India too," said the dealer, referring to premiums
for gold bars against the spot London prices.

    The wedding and festival season are underway in India, the
world's top gold consumer, with jewellery a key part of
celebrations.
     U.S. gold for April was at $,1585.30 an ounce, up  
 $12.50. It had dropped to $1,554.30 on Thursday, its weakest
since June. 
    "COMEX is catching up with spot gold and the market may be
seeing some support from South Korean leader's comments on North
Korea's nuclear programme," said a dealer in Singapore.
    South Korea's new president Park Geun-hye urged North Korea
on Monday to abandon its nuclear ambitions, and to stop wasting
its scarce resources on arms, less than two weeks after the
country carried out its third nuclear test. 
     In other markets, shares edged higher on Monday, while the
yen hit a 33-month on speculation the Japanese government is set
to name two strong supporters of aggressive monetary easing to
top posts at the central bank. The weak yen lifted gold
contracts on the Tokyo Commodity Exchange.  
    "We have downgraded our average 2013 gold prices by 6.7
percent to $1,690 an ounce, from an expected slowdown in
investment demand for gold in the West and a move towards more
growth-oriented assets," said ANZ in a report. 
    "While we have downgraded our near-term views, gold prices
should accelerate in the second half on improving demand from
India and China." 
    Hedge funds and other big speculators cut their bullish bets
on U.S. commodities by the most in nearly 10 months just before
oil and metals prices tumbled this week on rumours a commodities
fund was dumping positions, trade data showed on Friday.
 
    Russia and Turkey both raised gold holdings for a second
consecutive month in January, data from the International
Monetary Fund showed, highlighting central banks' interest in
diversifying part of their reserves into bullion.
      
    
  Precious metals prices 0724 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1585.34    5.04   +0.32     -5.33
  Spot Silver        28.80    0.11   +0.38     -4.89
  Spot Platinum    1609.74    4.50   +0.28      4.87
  Spot Palladium    737.50    1.50   +0.20      6.58
  COMEX GOLD APR3  1585.30   12.50   +0.79     -5.40        27786
  COMEX SILVER MAR3  28.78    0.32   +1.12     -4.80         6101
  Euro/Dollar       1.3219
  Dollar/Yen         94.23
 
  COMEX gold and silver contracts show the most active months
 
 (Editing by Tom Hogue)