* Brent premium over U.S. crude narrows

  * UN inspectors declare Iran mission a failure

  * U.S. weekly crude stocks rise sharply-EIA

  * Coming up: U.S. consumer confidence data, Friday (Updates with U.S. crude post-settlement high, volumes)

  By Gene Ramos

  NEW YORK, Feb 23 (Reuters) - Brent crude rose for a fourth day, hitting a fresh nine-month high and a record in euro terms on Thursday, creating renewed concerns for cash-strapped Europe on heightened tensions between Iran and the West.

  On a euro basis, Brent futures hit a record 93.60 euros per barrel in early trade, exceeding the previous peak of 93.46 euros hit on July 3, 2008, prompting concern that high oil prices would hit the shaky economic recovery and further dent demand.

  U.S. crude rose further, as investors sold off a key spread -- the premium of international benchmark Brent to U.S. futures -- after a government report showed a drop in inventories at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange's contract.

  Rising inventories in the U.S. Midwest have depressed the value for U.S. futures, widening Brent's premium to U.S. crude to over $20 a barrel earlier in the month. The spread < CL-LCO1=R> narrowed 83 cents on Thursday, closing at $15.79.

  Goldman Sachs said in a research note it expected the spread to narrow to $5 a barrel over the next six months, as the reversal of the Seaway pipeline in the Midwest sends more crude from the region to the Gulf Coast refining hub.

  The bank also recommended taking profits on July 2012 Brent long positions and opening September 2012 long positions for U.S. crude oil futures.

  " Spread trading on WTI-Brent pushed up U.S. crude, which is also testing technical resistance here," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

  In London, Brent crude for April delivery settled at $123.62 a barrel, rising 72 cents, to mark the highest front-month settlement since May 2 last year, off its intraday high of $124.50.

  Rising for the sixth consecutive session, U.S. April crude settled at $107.83, gaining $1.55, the highest settlement for front-month NYMEX crude since May 4 last year.

  In post-settlement trading, U.S. April crude extended its session high to $108.74, the highest intraday price for front-month NYMEX crude since May last year.

  Brent's total trading volume was 606,181 contracts, 17 percent above its 30-day average and U.S. crude volume was 715,999 contracts, nearly 4 percent above its 30-day average, Reuters data showed.

  Stockpiles at the Cushing, Oklahoma, hub dropped 315,000 even though overall U.S. crude inventories rose 1.63 million barrels last week, more than expected, according to data from the U.S. Energy Information Administration.

  " The draw in Cushing caused a selling of the Brent-WTI spread, which had strengthened previously after stocks there rose in recent weeks," said Hamza Khan, analyst at the Schork Group in Villanova, Pennsylvania.

  IRAN TENSIONS

  Iran remained defiant after U.N. nuclear inspectors said they had failed in their latest mission to check activities at a site where the U.N. International Energy Agency said there is a facility to test explosives.

  Iran's stance has sparked fears that Iran's confrontation with the West over its disputed nuclear program would escalate and affect oil flow from the Middle East.

  " It's all about Iran. The inspectors leaving intensifies the concerns and backs up the Israeli argument that diplomacy will not work," said John Kilduff, partner at Again Capital LLC in New York.

  Sanctions imposed by the United States against Tehran have already caused Asian buyers to cut purchases of Iranian oil while the European Union has moved to ban Iranian oil from July.

  The bombardment of rebel sites by government forces in Syria and attacks on mostly Shi'ite targets across Iraq added to investor anxiety over the Middle East.

  U.S. INVENTORIES, DEMAND ECONOMIC DATA

  While U.S. inventories of distillates and gasoline showed modest declines last week, demand for refined oil products plunged to their lowest level in nearly 15 years, EIA data showed in the latest EIA report.

  Total U.S. oil product demand on a four-week average basis fell last week by 6.7 percent year-on-year to 18.05 million barrels per day, the lowest level since April 1997.

  Ahead of the U.S. summer driving season, motorists were cutting back on fuel usage due to high pump prices.

  (Additional reporting by Robert Gibbons and Matthew Robinson in New York, Zaida Espana and Simon Falush in London Editing by Lisa Shumaker)

* Senators says closer ties would help US, EU compete

  * Interim report on possible options due in June

  * Tariff cuts could add $180 bln to transatlantic GDP

  By Doug Palmer

  WASHINGTON, Feb 23 (Reuters) - A bipartisan group of senators on Thursday urged President Barack Obama to strengthen trade ties with the European Union, which they said would help create jobs on both sides of the Atlantic at a time of tight government budgets. " As we take steps to create the conditions for sustained future economic growth, we should make increased trade and investment with the European Union a priority," Senate Foreign Relations Committee Chairman John Kerry, a Massachusetts Democrat, and 18 of his colleagues said in a letter.

  The group included Senator Rob Portman, an Ohio Republican who served as U.S. trade representative during the administration of former President George W. Bush.

  " The United States and the European Union ... face continuing fiscal challenges to spur economic growth. To attract investment and create jobs at home, we need to continue to open new markets and innovate, as we face new sources of competition from emerging markets around the world," the senators said.

  A study by the European Center for International Political Economy estimated eliminating remaining tariffs on transatlantic trade in goods could boost the combined gross domestic product of the United States and the EU by $180 billion in five years, with additional gains possible from expanding trade in services and reducing regulatory barriers, they said.

  The United States and the European Union agreed late last year to explore negotiating a free trade agreement or other steps to boost what is already world's largest commercial relationship, valued at over $4 trillion.

  U.S. Trade Representative Ron Kirk and EU Trade Commissioner Karel De Gucht were tasked to develop recommendations for leaders to consider at the next U.S.-EU summit at the end of the year. They will also release an interim report in June.

  The initiative comes as the United States is pursuing a transpacific free trade agreement with eight other countries in the region and potentially also Japan, Mexico and Canada.

  A deadlock in 10-year-old world trade talks has encouraged Washington to look for new avenues to expand exports.

 

  (Reporting By Doug Palmer Editing by Cynthia Osterman)

WASHINGTON, Feb 23 (Reuters) - President Barack Obama said on Thursday the federal government would fight high oil prices by easing bottlenecks and problems with permitting, but that the country would not be able to drill its way to lower oil prices.

  Obama said the government would look for ways to run vehicles on fuels beyond gasoline, such as advanced biofuels and natural gas. " We can't just allow ourselves to be held hostage by the ups and downs of the world oil market. We have to keep developing new sources of energy," Obama said in a speech at the University of Miami.

  (Reporting by Matt Spetalnick and Missy Ryan Editing by Peter Cooney)

* Jobless claims hold steady in latest week

  * S& P edges over 1,360, but traders await convincing break

  * Hedging may be preventing a correction

  * Indexes up: Dow 0.4 pct, S& P 0.4 pct, Nasdaq 0.8 pct

  * For up-to-the-minute market news, see (Updates to close)

  By Rodrigo Campos

  NEW YORK, Feb 23 (Reuters) - Wall Street stocks rose on Thursday after data showed the U.S. labor market remained on the mend, but the market stalled as it approached highs not seen since before the 2008 collapse of Lehman Brothers.

  In an upbeat note for the economy, new U.S. claims for unemployment benefits held steady last week and were at the lowest since the early days of the 2007-2009 recession.

  Thursday's gains brought the benchmark S& P 500 index near 1,370, considered the upper end of a technical barrier. The broad index has surged 8.4 percent this year and more than 20 percent from October lows, but many worry the market will soon run out of steam.

  In the past four sessions, the S& P has hovered around 1,360, closing on Thursday at a 9-month high.

  " You have a reluctance to buy knowing we're right up at former highs," said Todd Salamone, director of research at Schaeffer's Investment Research in Cincinnati.

  But the market has also been reluctant to sell off on bad news. Some analysts say the main factor preventing a correction has been the result of a commonly used investor protection.

  " The fact that we're not selling off sharply on bad news could be related to the huge amount of hedging going on," said Salamone.

  One hedging strategy investors use is betting on a sudden rise in the CBOE volatility index. The VIX, as it is known, is expected to soar from its current levels if the S& P 500 retreats sharply.

  Data show volume in VIX futures rose sharply to more than 100,000 contracts on separate days in the past two weeks. That volume has not been seen since the United States had its credit rating downgraded from triple-A in the week of August 2011.

  The Dow Jones industrial average gained 46.02 points, or 0.36 percent, to 12,984.69. The S& P 500 Index rose 5.80 points, or 0.43 percent, to 1,363.46. The Nasdaq Composite added 23.81 points, or 0.81 percent, to 2,956.98.

  According to Thomson Reuters data through Thursday morning, of the 446 companies in the S& P 500 that have reported earnings, 63 percent topped analysts' expectations. That falls below the 70 percent average beat in the past four quarters, but slightly above the average since 1994 of 62 percent.

  Sears Holdings shares soared despite reporting a huge quarterly net loss, after the company reassured investors about its ability to pay down debt.

  The stock of the operator of Sears department stores and the Kmart chain was up 18.7 percent at $61.80, nearly doubling in price so far this year but far from last year's high above $94.

  Shares of Vivus Inc rose 78 percent as investors bet its experimental weight-loss drug would be approved by U.S. regulators.

  The Nasdaq biotech index rose 2 percent.

  Hewlett-Packard Co tumbled 6.5 percent to $27.05 and was the biggest drag on the Dow. Late Wednesday, the world's No. 1 computer maker posted a sharp decline in earnings and warned it would take several years to turn around its sprawling businesses. (Reporting by Rodrigo Campos additional reporting by Angela Moon and Doris Frankel Editing by Kenneth Barry)

By Fredrik Dahl and Parisa Hafezi

  VIENNA/TEHRAN (Reuters) - The U.N. nuclear watchdog's latest mission to Iran failed to budge a defiant Tehran over its disputed nuclear programme, sending oil prices to a nine-month high over fears of an increasing risk of confrontation with the West.

  The United States criticised Iran on Wednesday over the collapse of the International Atomic Energy Agency's talks in Tehran, saying it again showed the Islamic Republic's refusal to abide by international obligations over its nuclear programme.

  Expressing defiance, Supreme Leader Ayatollah Ali Khamenei said Iran's nuclear policies would not change despite mounting international pressure against what the West says are Tehran's plans to obtain nuclear bombs.

  " With God's help, and without paying attention to propaganda, Iran's nuclear course should continue firmly and seriously," he said on state TV. " Pressures, sanctions and assassinations will bear no fruit. No obstacles can stop Iran's nuclear work."

  A team from the Vienna-based IAEA had hoped to inspect a site at Parchin, southeast of Tehran, where the agency believes there is a facility to test explosives. But the IAEA said Iran " did not grant permission."

  The failure of the two-day IAEA visit could hamper any resumption of wider nuclear negotiations between Iran and six world powers - the United States, China, Russia, Britain, France and Germany - as the sense grows that Tehran feels it is being backed into a corner.

  The standoff has rattled oil markets. On Wednesday, London-traded benchmark Brent crude for April delivery rose for a third day - up $1.24 a barrel at $122.90, a nine-month high. U.S. crude futures for April were up 3 cents at $106.28 a barrel.

  In Washington, White House spokesman Jay Carney said the United States was evaluating Iran's intentions.

  " This particular action (over the IAEA mission) by Iran suggests that they have not changed their behaviour when it comes to abiding by their international obligations," Carney told reporters.

  Iran rejects accusations that its nuclear programme is a covert bid to develop a nuclear weapons capability, saying it is seeking to produce only electricity.

  As Western sanctions mount, ordinary Iranians are suffering from the effects of soaring prices and a collapsing currency. Several Iranian nuclear scientists have been killed over the past two years in bomb attacks that Tehran has blamed on its arch-adversary Israel.

  Major oil importer Japan was in final talks with Washington on an agreement for cuts in Iranian crude oil imports that could amount to a higher-than-expected 20 percent or more a year, a newspaper reported on Thursday.

  China, India and Japan, the top three buyers of Iranian oil, are all planning cuts of at least 10 percent. They buy about 45 percent of Tehran's crude exports.

  IRAN'S DEFIANT STANCE

  In response to Western pressure and sanctions, Iran has issued a series of statements asserting its right to self-defence and threatening to block the Strait of Hormuz, a vital oil tanker route.

  The collapse of the nuclear talks occurred as Iran seems increasingly isolated, with some experts seeing Tehran's defiance in response to sanctions against its oil industry and financial institutions as evidence that it is in no mood to compromise with the West.

  Parliamentary elections on March 2 are expected to be won by supporters of Khamenei, an implacable enemy of the West.

  The United States and Israel have not ruled out using force against Iran if they conclude that diplomacy and sanctions will not stop it from developing a nuclear bomb.

  In Jerusalem, Israel's Foreign Minister Avigdor Lieberman dismissed appeals by world powers to avoid any pre-emptive attacks against Iran's nuclear programme.

  Lieberman said that " with all due respect I have for the United states and Russia, it's none of their business. The security of Israel and its residents, Israel's future, is the responsibility of Israel's government."

  The failure of the IAEA's mission may increase the chances of a strike by Israel on Iran, some analysts say.

  But this would be " catastrophic for the region and for the whole system of international relations," Russian Deputy Foreign Minister Gennady Gatilov said.

  Referring to Iran's role in the failure of the IAEA mission, French Deputy Foreign Ministry spokesman Romain Nadal said: " It is another missed opportunity. This refusal to cooperate adds to the recent statements made by Iranian officials welcoming the progress of their nuclear activities."

  In the view of some analysts, the Iranians may be trying to keep their opponents guessing as to their capabilities, a diplomatic strategy that has served them well in the past.

  " But they may be overdoing the smoke and mirrors and as a result leaving themselves more vulnerable," said professor Rosemary Hollis of London's City University.

  Iranian analyst Mohammad Marandi said providing the West with any more access than necessary to nuclear sites would be a sign of weakness.

  " Under the current conditions it is not in Iran's interest to cooperate more than is necessary because the West is waging a war against the Iranian nation," he told Reuters.

  IAEA " DISAPPOINTED" OVER OUTCOME

  Earlier, Iran's envoy to the IAEA, Ali Asghar Soltanieh, said Tehran expected to hold more talks with the U.N. agency, but IAEA Director General Yukiya Amano's spokeswoman said no further meetings were planned.

  " During both the first and second round of discussions, the agency team requested access to the military site at Parchin. Iran did not grant permission for this visit to take place," the IAEA said in a statement.

  " It is disappointing that Iran did not accept our request to visit Parchin. We engaged in a constructive spirit, but no agreement was reached," Amano said.

  A Western official, who declined to be identified, said: " We think that if Iran has nothing to hide, why do they behave in that way?"

  Iran's refusal to curb sensitive atomic activities which can have both civilian and military purposes and its record of years of nuclear secrecy have drawn increasingly tough U.N. and separate U.S. and European measures.

  An IAEA report in November suggested Iran had pursued military nuclear technology. It helped precipitate the latest sanctions by the European Union and United States.

KABUL (Reuters) - The Taliban urged Afghans on Thursday to target foreign military bases and " beat and kill" Westerners in retaliation for burnings of copies of Islam's holy book, the Koran, at NATO's main base in the country as a third day of protests began.

  Thousands of demonstrators rallied across the country on Wednesday, some chanting " Death to America!" and demanding U.S. and foreign military forces leave Afghanistan, Reuters witnesses and local officials said.

  " Our brave people must target the military bases of invader forces, their military convoys and their invader bases," read an e-mailed Taliban statement released by spokesman Zabihullah Mujahid.

  " They have to kill them (Westerners), beat them and capture them to give them a lesson to never dare desecrate the holy Koran again."

  The U.S. government and the American commander of NATO-led forces in Afghanistan apologised for " unintentional" burnings after Afghan labourers found charred copies of the Koran while collecting rubbish at the huge Bagram Airbase, about an hour's drive north of Kabul.

  The largest protests on Thursday were in eastern Laghman province, with others erupting in the eastern city of Jalalabad and in the capital Kabul.

  Six people were killed and dozens wounded in demonstrations on Wednesday across the country, prompting President Hamid Karzai to urge calm.

  (Reporting by Mirwais Harooni Writing by Amie Ferris-Rotman Editing by Rob Taylor and Nick Macfie)

By Steve Holland

  MESA, Arizona (Reuters) - Mitt Romney is fighting his way back into the driving seat in the Republican presidential race, putting in a strong debate performance in Arizona and gaining in polls against conservative rival Rick Santorum.

  An aggressive Romney repeatedly put Santorum on the defensive in a CNN debate on Wednesday and attacked the former U.S. senator and staunch social conservative for supporting big-spending government programs.

  Romney has also battled his way into a slight lead in a new poll in Michigan, which along with Arizona will hold a primary contest on February 28. Romney had trailed Santorum by as much as double digits a week ago in the Michigan race.

  The pace of the Republican race quickens dramatically next month, with 22 state nominating contests in March, including 10 on " Super Tuesday" March 6.

  " This debate will really give Romney some momentum heading into the Michigan primary," Republican strategist Ron Bonjean said. " Santorum clearly was having a hard time having to apologize and explain so many of his votes."

  The debate was Santorum's first time in the political spotlight since charging into a national lead after winning three contests on February 7 in Missouri, Minnesota and Colorado.

  But his sometimes awkward defence of votes he cast in the Senate, including his claim that politics was a " team sport" and that he sometimes had to vote for bills that did not like, could hurt his support among conservatives tired of Washington politics-as-usual.

  " There is always an excuse," rival Ron Paul said of Santorum's various explanations. " That's what the problem is with Washington," said Paul, a Texas congressman who described Santorum's fiscal conservatism as " fake."

  The primary in Michigan, where Romney was born and raised and his father was an auto executive and popular governor, has become a must-win for the former Massachusetts governor and former head of a private equity group.

  A Romney loss there would be crippling blow that would set off alarm bells among Republicans about his ability to win the allegiance of conservatives, ensuring a long and potentially draining battle for the nomination.

  But a win in Michigan and Arizona would put Romney back in command in a race that has featured a series of conservative rivals who have risen to challenge him only to fall back into the pack.

  Santorum, a former U.S. senator from Pennsylvania, is the latest candidate to seriously contest the party's nomination to face Democratic President Barack Obama in a November 6 general election.

  On Thursday, Romney will speak to a builders' group in Arizona before heading to Michigan for an evening rally of the conservative Tea Party movement. On Friday, he will address the Detroit Economic Club. Santorum is fund-raising in Texas on Thursday.

  POLLS TIGHTEN

  New polls in Michigan and Arizona on Wednesday showed Romney gaining ground on Santorum. He held a slight 2-point edge on Santorum in an NBC/Marist poll in Michigan, and a 16-point edge in an NBC/Marist poll in Arizona, where a CNN/Time poll earlier in the week gave him just a 4-point edge.

  The broader campaign battleground in March could allow Romney to exercise his financial and organizational edge on his rivals, and put him in a strong position to knock them out and wrap up the race at least by April, if not earlier.

  Santorum may have missed his chance at Wednesday's debate.

  " Santorum needed a strong performance in the debate and he didn't get it," Republican strategist Ford O'Connell said. " All eyes were on him. He had an opening and he missed it."

  A devout Catholic, Santorum is best known for conservative positions on religious freedoms, abortion and gay marriage, but Romney took aim at him frequently on Wednesday night as a big spender.

  " I'm looking at his historic record - voting for raising the debt ceiling five different times without voting for compensating cuts," Romney said.

  " Voting to fund Planned Parenthood, to expand the Department of Education. During his term in the Senate, spending grew by some 80 percent of the federal government," he said. Planned Parenthood provides abortion, birth control and other health services to women.

  Former U.S. House of Representatives Speaker Newt Gingrich, who represented Georgia while he served in Congress, is hoping to rebound from his recent drop in the polls to reassert himself during some of the March contests in Southern states like Georgia, Oklahoma, Mississippi, Alabama and Louisiana.

  No other debates are scheduled in the Republican race, although more could be added if the contest stretches into April and beyond.

  (Writing by John Whitesides Editing by Alistair Bell and Paul Simao)

(Repeats story that first ran on Wednesday)

  * Most EU members are above debt-safety threshold

  * Spotlight on big Spanish, Portuguese debt loads

  * Low growth makes deleveraging harder risk for banks

  By Alan Wheatley, Global Economics Correspondent

  LONDON, Feb 22 (Reuters) - Away from the markets' fixation with the debts of Greece and other governments, concern is growing at the painfully slow progress Europe is making in tackling a much bigger mountain of corporate and household debt.

  With austerity pointing to weak growth if not outright recession, the risk is that the burden of servicing the debt can only increase, causing a rise in bad loans. The spotlight then would fall on the capacity of banks to take losses and whether they might have to turn to their governments for help.

  And overindebtedness is not confined to the periphery of the bloc.

  Denmark, Sweden and the Netherlands all have private-sector debt that far exceeds the safety threshold of 160 percent of GDP set by the European Commission as part of a new exercise to detect and correct risky macroeconomic imbalances.

  In the case of the Netherlands, the main culprit is home loans, which have risen more than 7 percent a year since 2000 as borrowers have taken advantage of the tax deductibility of mortgage interest, according to Dutch central bank governor Klaas Knot.

  " In my view the high stock of mortgage debt is among today's biggest vulnerabilities of the Dutch economy," Knot, a member of the European Central Bank's Governing Council, said in a recent speech in London.

  Up to a point, debt is not only good for growth, it is vital. But it's possible to have too much of a good thing.

  The Commission, the EU's executive body, said no fewer than 15 of the EU's 27 members exceeded its 160 percent safety cutoff, led by Ireland on 341 percent.

  A recent Bank for International Settlements working paper concluded that when public debt rises to 95 percent of GDP from 85 percent, trend economic growth can be reduced by more than one-tenth of a percentage point.

  For corporate debt the pain threshold is closer to 90 percent and the economic hit is slighter, while for household debt the BIS's best guess is that the inflection point is around 85 percent of GDP.

  " A clear implication of these results is that the debt problems facing advanced economies are even worse than we thought," said the BIS authors, led by chief economist Stephen Cecchetti.

 

  PAIN IN SPAIN

  What should be done?

  " Current efforts focus on raising the cost of credit and making funding less readily available to would-be borrowers. Maybe we should go further, reducing both direct government subsidies and the preferential treatment debt receives. In the end, the only way out is to increase saving," the BIS paper said.

  Although private sector debt burdens are worryingly high in a host of European countries, the markets' focus is understandably on those countries that have either been bailed out by the EU and the International Monetary Fund or are struggling to sell their bonds at non-punitive rates.

  Take Spain. Its public sector debt is still only 61 percent of GDP, having doubled since the onset of the crisis, but it is drowning in private sector debt equivalent to 227 percent of GDP.

  Spanish corporations hold twice as much debt relative to national output as do U.S. companies, and six times as much as German firms, according to the McKinsey Global Institute.

  " Debt reduction in the corporate sector may weigh on growth in the years to come," MGI said in a report.

  Looking at the composition of Spain's debt, Jamie Dannhauser, an economist with Lombard Street Research, a London consultancy, said it was irrational to describe Spain as facing a sovereign debt crisis brought on by fiscal profligacy.

  Rather, investors are demanding high bond yields because they are worried about the impact that recessionary policies will have on Spanish corporations and, with a lag, on the country's banks.

  " Growth is the only way to make the private debt stock sustainable, and the market quite reasonably judges that all of the policies being forced on Spain will depress output in the short term," he said.

 

  COMING DOWN SLOWLY

  Banks have set aside plump loan-loss provisions, but Spain's private debt load was " grotesque" , Dannhauser said.

  " Markets are worried about the banks, and because the government ultimately stands behind the banks, they then become worried about the government," he said.

  Recession in Spain would have a big impact on Portugal, which is both deeper in debt and less competitive than its bigger neighbour. According to the Commission, Portugal has public-sector debt of 93 percent of GDP and private-sector debt of a whopping 249 percent of GDP.

  Making matters worse, Portugal's corporate debt to GDP is still as high as it was at the peak of the financial crisis.

  And, on Lombard Street Research's figures, the capacity of business to service the debt is stretched: non-financial company debt is 16 times pre-interest cash flow compared with 12 in Spain.

  " As such, Portugal's banking system is hugely exposed to the deepening recession," Dannhauser said.

  For the euro zone as a whole, the picture is a little brighter as firms in most of the larger countries have started to deleverage.

  The ratio of debt to total assets has declined from a peak in 2009, as has their debt service burden, according to a study by Guntram Wolff and Eric Ruscher with Bruegel, a Brussels think tank.

  The corporate debt-to-GDP ratio has also dipped, to 79 percent from 81 percent in late 2009, but it was just 60 percent as recently as 2000. As such, they said it was too early to sound the all-clear.

  " The still very high level of indebtedness of non-financial corporations by historical standards points to remaining vulnerabilities, in particular in scenarios of high costs of debt financing," Wolff and Ruscher said in a report.

By Rujun Shen

  SINGAPORE (Reuters) - Spot gold edged lower on Thursday, taking a breather after hitting a three-month high in the previous session, while sentiment remains supported on hopes of further monetary easing after sluggish economic data from the euro zone and China.

  Data showed unexpectedly weak activity in the euro zone, while China's manufacturing sector contracted for the fourth straight month, fueling anticipations that central banks will further ease monetary policy to promote economic growth.

  Gold benefits from loose monetary policy, as abundant credit keeps the opportunity cost of carrying gold low. In addition, higher inflation outlook caused by a flood of cheap cash burnishes the appeal of gold, traditionally seen as a good hedge against inflation.

  " There is always a case to be made for gold, as long as the central banks keep taking new easing measures or keep indicating they will take more new measures down the road," said a Singapore-based trader.

  He said that the weak numbers of out China added to the argument that more easing will be adopted by Beijing.

  Spot gold edged down 0.1 percent to $1,773.89 an ounce by 0338 GMT, after three consecutive days of gains.

  U.S. gold inched up 0.3 percent to $1,775.80 an ounce.

  Technical signals were also supportive of gold's strength. Chart analysis suggested that spot gold could extend gains to $1,797 an ounce during the day, Reuters market analyst Wang Tao said.

  Scrap selling was spotted from Thailand and Indonesia, while buying from China and India remained muted, dealers in Hong Kong and Singapore said.

  PLATINUM RALLY MAY PROVE SHORT-LIVED

  Spot platinum hit a five-month high of $1,726.5 an ounce earlier in the day, before retracing to $1,715.49 an ounce, down 0.3 percent from the previous close.

  Prices of the metal, mainly used in jewellery and automotive sectors, rallied about 5 percent this week on chart strength and supply woes in South Africa.

  But technical analysis suggested that platinum might be running out of steam in the short run.

  " Bullishness on breaking the 200-day moving average may prove short-lived," said Tim Riddell, head of ANZ Global Markets Research, Asia.

  The breakthrough fuelled expectations that platinum could move towards $1,790, the centre of the predominant trading range in the first three quarters of 2011, but it may be just completing a broad cycle from the December low below $1,340, he added.

  " What it means is that the current bullish expectations about breaking moving average needs to be tempered and any slippage below $1,690 could trigger disappointment and a sharp retracement to $1,570-$1,600 areas."