Gold price hovers above $1,600/oz on Cyprus concerns

Gold hovered near a 2-1/2-week high on Tuesday, as nervousness around Cyprus' upcoming vote on a levy on bank deposits supported safe haven interest in gold, but investors were sceptical if such support would be sustained.

The Cypriot parliament delayed the vote on the savings tax to Tuesday, and euro zone ministers agreed to give Cyprus more flexibility in exempting depositors with less than 100,000 euros from the tax.

The radical bailout package announced over the weekend has not managed to change general expectations for a global economic recovery among investors, whose interest in safe havens such as gold remains sluggish.

SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, posted its biggest daily decline in nearly a month on Monday despite a gain of 0.8 percent in gold prices.

"There are worries, but the extent of such worries is limited, reflected in the fact that some investors panicked and others used the opportunity to pick up (risky assets)," said Jiang Shu, an analyst at China's Industrial Bank.

"After all, the U.S. economy is doing much better than 2009 and 2010, which helped blunt the blow from Cyprus."

Spot gold was little changed at $1,605.56 an ounce by 0320 GMT, near a 2-1/2-week high of $1,610.81 hit in the previous session.

U.S. gold traded nearly flat at $1,604.70.

Technical analysis suggested spot gold faces resistance at $1,611 an ounce and may either hover below this level or retrace to $1,593, Reuters market analyst Wang Tao said.

In a sign of ebbing fear, Asian shares rebounded and the euro pulled back from a three-month low against the dollar hit on Monday.

The U.S. Senate inched closer on Monday to passage of a bill to fund federal agencies through Sept. 30 and avoid a government shutdown when existing funds run out at the end of March, alleviating fears that spending cuts would derail the economic recovery.

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