(Reuters) - Gold prices traded steady on Monday, after posting their sharpest weekly rise in more than a month, as the euro zone kicks off a week packed with meetings and decisions crucial to a solution to its debt crisis as well as the euro.
The two-year-old debt crisis has not only pushed a few euro zone nations to the brink of bankruptcy, but also threatened to split the single currency bloc and sink the global economy.
In a sign that the global economy is slowing, the latest data showed China's services sector cooled in November to its weakest growth in three months.
Later in the day, French President Nicholas Sarkozy and German Chancellor Angela Merkel will meet to align their positions on closer fiscal integration of the region, before a European Central Bank meeting and a European Union summit later in the week.
Although financial markets have rallied recently on a joint move by central banks to inject liquidity as well as hopes for a decisive move by the European leadership to fight the debt crisis, the outcome of the summit is far from certain.
"We've witnessed a number of EU summits trying to tackle the problem, but none of them has been particularly effective," said Li Ning, an analyst at Shanghai CIFCO Futures.
"Fiscal unity is not something that can be agreed upon at one meeting, as countries have different stands on the issue."
Spot gold was little changed at $1,744.95 an ounce by 0655 GMT, after rising nearly 4 percent in the previous week.
U.S. gold edged down 0.1 percent to $1,749.10.
Gold has the potential to move higher in the short term after trading in a tight range around $1,750 in the past few sessions, riding on optimism ahead of the summit, but the rise may be stemmed at the key resistance level at $1,800, Li added.
CHINA ECONOMY SLOWS; INFLATION FEAR EASES
After China published data showing its vast manufacturing sector shrank in November, an HSBC purchasing managers' index showed the world's second-largest economy slowing quickly and in need of policy support.
"Easing monetary policy may suggest that the government is comfortable with the current rate of inflation, which is negative for gold," said a Singapore-based trader.
"A lot of gold buying in China has been driven by the inflation story that was reinforced by the constant reserves ratio hikes."
Bu in the longer term, the easing of monetary policy raises the inflation outlook and benefits gold, seen as a good inflation hedge.
Managed money cut its net long positions in U.S. gold futures and options for a second consecutive week in the week ended November 29. The total open interest fell to its lowest in 10 months, suggesting decreased liquidity and trading interest in the market.
Spot palladium edged up 0.4 percent to $645 an ounce, extending a 14-percent rise from the previous week -- its biggest one-week gain in more than three years.
