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.
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)
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