PRECIOUS-Gold inches up on Asia demand; firm dollar caps gains

* Physical demand seen from China, Southeast Asia
    * Weak interest from Western investors keeps a lid
    * Spot gold may drop to $1,592/oz - technicals
    * Coming up: Germany ZEW economic sentiment; 1000 GMT

 (Adds details; updates prices)
    By Rujun Shen
    SINGAPORE, Feb 19 (Reuters) - Gold rose for a second
straight session on Tuesday, buoyed by strong physical buying in
Asia after traders in China returned from a week-long break, but
the lack of interest from Western investors and a firm dollar
kept a lid on gains.
    Gold dropped by a steep 3 percent last week -- biggest such
drop in nine months -- and Chinese traders rushed to pick up
bargains when they resumed business this week, sending volumes
on Shanghai Gold Exchange to record highs on Monday. 
    But the frenzy can be short-lived, traders cautioned.
    "The rebound is very weak," said Chen Min, an analyst at
Jinrui Futures in the southern Chinese city of Shenzhen. 
    "Investors would rather put money elsewhere when the U.S. is
recovering and the euro zone economy seems to be on the mend.
Chances are small that prices will rally soon as the sentiment
has turned bearish, and we may see the decline of prices into
mid-year slack consumption season."
    Chen expected prices to drop to $1,500-$1,550 an ounce by
mid-year.
    Spot gold edged up 0.2 percent to $1,612.30 an ounce
by 0722 GMT, hovering above a six-month low of $1,598.04 hit
late last week. 
    U.S. gold was up 0.1 percent to $1,611.80.
    A firm dollar, however, capped gains.
    The dollar rose to its highest against a basket of
currencies in more than a month, putting pressure on
commodities priced in the greenback by making them more
expensive for buyers holding other currencies. 
    Spot gold could drop to $1,592 an ounce during the day after
a moderate consolidation in a narrow range of $1,606.83-$1,618,
Reuters market analyst Wang Tao said. 
     
     
    
    PHYSICAL DEMAND
    Buying picked up in Asia's physical market in the past few
days especially after Chinese market reopened after the holiday
on Monday.
    "We have seen very good physical demand from Southeast Asia
and China," said Yuichi Ikemizu, head of commodity trading,
Japan, at Standard Bank.
    But the strong interest from Asia did not translate into a
quick rebound in prices, as enthusiasm from investors outside
the region has cooled due to an improving global economic
outlook that dims gold's safe-haven appeal.
    "Asians are buying, but it is offset by the selling from
funds in the Western market," Ikemizu added.
    Speculators cut their net long positions in U.S. gold to
70,250 contracts in the week to Feb. 12, the lowest level since
December 2008, down more than 30 percent from the end of 2012,
data from the U.S. Commodity Futures Trading Commission shows.
 
    Investors will scour the minutes from the latest policy
meeting of the U.S. Federal Reserve, due Wednesday, for hints on
the central bank's attitude to monetary stimulus, which has been
a key driver behind gold's rally in recent years. 
    Labour tensions in South Africa's platinum sector may
support prices of the metal that is mainly used in catalyst
converters and jewellery. 
    Workers at Anglo American Platinum's Rustenburg
operations are likely to stay away from work on Tuesday
following violence at the mine the previous day. 
 
    But European car sales kicked off 2013 with an 8.5 percent
decline, weighing on outlook of platinum demand. The European
market is dominated by diesel engines that mainly use platinum
in catalyst converters. 
    Spot platinum fell 0.7 percent to $1,679.99, off a
two-week low of $1,666.50 hit last Friday.
    
    Precious metals prices 0722 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1612.30    2.75   +0.17     -3.72
  Spot Silver        29.96    0.12   +0.40     -1.06
  Spot Platinum    1679.99  -12.01   -0.71      9.45
  Spot Palladium    758.50   -2.50   -0.33      9.61
  COMEX GOLD APR3  1611.80    2.30   +0.14     -3.82        79559
  COMEX SILVER MAR3  29.96    0.11   +0.36     -0.91        21556
  Euro/Dollar       1.3338
  Dollar/Yen         93.49
  COMEX gold and silver contracts show the most active months
 

 (Editing by Himani Sarkar)