PRECIOUS-Gold extends gains, but heads for 3rd straight weekly drop

* Investors still cautious over euro zone debt worries

* Gold faces resistance at $1,582-technicals

* Coming Up: U.S. CFTC commitment of traders data; 1930 GMT

(Updates prices, adds quotes)

By Lewa Pardomuan

SINGAPORE, May 18 (Reuters) - Gold rose on Friday, after
posting its largest one-day gain in more than three months in
the previous session, but prices were on track to drop for a
third straight week on mounting worries over the euro zone debt
crisis.

Investors are now awaiting the release of U.S. commitment of
traders data later in the day after speculators trimmed their
length in gold by 23,563 contracts to 92,498 contracts in the
week ended May 8 due to a sharp pullback in prices, marking the
lowest net long position since Dec. 16, 2008.

"With the reduction in net long positions, the risk of
further downside diminishes," said Nick Trevethan, a senior
commodity strategist at ANZ in Singapore

"Looking ahead, prices are going to be very contingent on
the news flow and the headlines we are getting out of Spain and
Greece in particular."

Bullion raced to a record of around $1,920 an ounce last
September on fears the euro zone debt crisis could spiral out of
control, but this year, the precious metal is moving in tandem
with assets that are perceived to be risky.

Gold added $2.21 an ounce to $1,575.46 by 0253 GMT,
off a 4-1/2-month low at $1,527 struck on Wednesday.

Gold rallied more than 2 percent on Thursday, biggest
one-day rise since January, supported by a decline in regional
U.S. factory activity that fueled hopes for more monetary
stimulus.

U.S. gold for June delivery hardly moved at
$1,575.60 an ounce.

Asian shares tumbled on Friday and were on track for their
worst weekly showing since September, amid signs of growing
instability among Spanish banks and political turmoil in Greece,
with investors adding the latest weak U.S. data to the list of
risk factors.

Spain's borrowing costs shot up at a bond auction on
Thursday and its troubled banks suffered a double blow, with
shares in part-nationalised Bankia diving and 16 lenders -
including the euro zone's biggest - having their credit ratings
cut.

"We'd like the market to hold at $1,550-$1,560. If it does
that, then I think there's a fair chance we could continue
higher towards $1,600 level, perhaps re-establishing the range
there," said Trevethan.

"But if the headlines out of Europe continue poorly, we may
retest the lows."

The euro hit a four-month low, extending the decline
prompted by fears Greece may leave the euro zone and contagion
jitters after Moody's downgraded 16 Spanish banks.

JEWELLERS SELL

In the physical market, higher bullion prices prompted
selling from jewellers and speculators, but premiums for gold
bars were mostly steady at $1.10 to $1.20 to London prices in
Singapore. Earlier this week, dealers noted buying interest from
Thailand, Indonesia and India.

"I am so confused in this kind of market. We did buy scraps
from Monday to Wednesday, but now we are selling. The market has
gone up and down so much," a dealer in Singapore said.

"Thailand is selling gold, and I am not sure what India is
doing right now."

Gold demand in top consumer India is likely to moderate in
2012 as higher inflation trims disposable income at a time
prices are stubbornly high on a weak rupee, the head of the
World Gold Council in the country told Reuters.

Holdings of the largest gold-backed exchange-traded-fund
(ETF), New York's SPDR Gold Trust, rose 0.17 percent on
Thursday from Wednesday, while, that of the largest
silver-backed ETF, New York's iShares Silver Trust,
climbed 1.08 percent during the same period.

Precious metals prices 0253 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1575.46 2.21 +0.14 0.75
Spot Silver 28.08 0.05 +0.18 1.41
Spot Platinum 1449.24 4.09 +0.28 4.04
Spot Palladium 600.22 2.22 +0.37 -8.01
COMEX GOLD JUN2 1575.60 0.70 +0.04 0.56 8949
COMEX SILVER JUL2 28.07 0.05 +0.16 0.54 2110
Euro/Dollar 1.2677
Dollar/Yen 79.42

COMEX gold and silver contracts show the most active months

(Editing by Himani Sarkar)