MARKETS-PRECIOUS (UPDATE 4) * Equities under pressure after raft of soft data * SPDR gold ETF reports fresh outflow on Friday * Physical gold demand recovers slightly as prices decline (Updates prices) By Jan Harvey LONDON, July 5 (Reuters) - Gold eased below $1,210 an ounce in Europe on Monday as the risk aversion that drove prices to record highs last month abated, with caution during the U.S. Independence Day holiday also keeping a lid on gains. A return of some physical demand after last week's price correction underpinned the metal, however. Spot gold was bid at $1,207.65 an ounce at 1120 GMT, against $1,210.60 late in New York on Friday. U.S. gold futures for August delivery firmed 50 cents to $1,208.20. The retreat of the extreme risk aversion that drove gold to a record $1,264.90 an ounce in June amid concerns over European sovereign debt levels has left the metal vulnerable to losses in the absence of other immediate positive drivers. A drop in holdings of the world's largest gold exchange traded fund, New York's SPDR Gold Trust, after relatively steady inflows throughout June reflects weaker investment appetite for the metal, Commerzbank analyst Eugen Weinberg said. "Most of these purchases were driven by fear, and fear seems to be leaving the market," he said. "People are not so afraid of data at the moment, and it appears measures by the European Central Bank are enough to hold the crisis for the next month. "We think during the third quarter stagnation or even falling prices are possible," he added. "But in the fourth quarter, we again expect further price gains, and expect prices to reach new all-time highs, probably above $1,300." The SPDR gold trust reported an outflow of a further 9,780 ounces on Friday, after a decline of just over 39,000 ounces in the previous session, its first dip since early June. Its holdings hit a record 1,320.436 tonnes that month. On the wider markets, the dollar firmed, up 0.25 percent against a basket of six other currencies and 0.3 percent versus the euro. Strength in the U.S. unit makes dollar-priced commodities more expensive for holders of other currencies. SLOWDOWN FEARED European shares were flat as data on the UK service and euro zone retail sectors disappointed, and worries over bank stress tests hurt financials. World equities fell amid concern over slowdowns in the United States and China. Other commodities firmed a touch, with oil climbing further above $72 a barrel and base metals such as copper, zinc and lead climbing after last week's drop. Analysts reported some improvement in physical demand for gold as prices declined. "Jewellery manufacturers are likely to buy fresh stocks on sharp price dips to lend further support to the market," Fairfax investment bank said in a note. Buying of gold in the world's top bullion consumer, India, was pressured by a nationwide strike in the country over a fuel price hike, however. Among other precious metals, silver was at $17.78 an ounce versus $17.80. Platinum was at $1,502.50 an ounce against $1,496.50 and palladium at $1427.50 against $430. "For now, $1,500 in platinum and $425 in palladium are acting as a 'home' for prices," said UBS analyst Edel Tully in a note. "At these levels, both metals are trading close to fundamental value." She said much of the speculative element to the metals' price rise earlier in the year had now been removed. "This will not insulate the metals from further downside pressure in coming months should concerns about global growth escalate, but the clearing out of the excessive speculative overhang should make them more resilient to the downside." (Reporting by Jan Harvey; Editing by Alison Birrane)

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