LONDON, Dec 28 (Reuters) - Gold dipped on Wednesday, tracking industrial metals, on concerns about the prospects for global economic growth next year, but the precious metal came off earlier lows after a strong Italian debt sale eased stress in European markets.
Spot gold was down 0.4 percent at $1,590 an ounce at 1425 GMT. U.S. gold was off 0.5 percent to $1,586.90.
"Gold is a touch lower, it's to do with the fact that people are still taking profits from the small rebound we had after the early December sell off," VTB Capital analyst Andrey Kryuchenkov said.
"Gold is still tightly correlated with equities markets, but also risk aversion is not at the levels we saw in early August when gold de-coupled from everything else and traded with the dollar," he added.
Although gold traditionally has a safe-haven appeal, the euro zone debt crisis is threatening the global economy, causing a liquidity shortage in markets and forcing investors to abandon their gold positions to cover losses elsewhere.
European shares rose on Wednesday in a low volume rally after investor sentiment was given a boost as short-term debt costs halved at a debt auction in Italy and improved confidence about demand for Thursday's Italian long-term bond sale.
Low volume made movements choppy and shares earlier dipped into negative territory on concerns about demand for the auction, before recovering as a closely-watched technical indicator suggested "oversold" conditions.
The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent, keeping it on course for a 2011 loss of 18 percent, compared with a 12 percent decline in European shares and a 9 percent drop in world stocks.
Italy's short-term debt costs halved at the auction on Wednesday as a new package of budget austerity and an injection of cheap long-term money from the European Central Bank won Rome some respite in thin year-end markets.
But analysts warned market nerves could easily be tested again and pointed to Thursday when Italy will sell up to 8.5 billion euros ($11.1 bln) of longer-term bonds, including three- and ten-year paper.
The dollar was almost flat against a basket of currencies , with the euro hovering around an 11-month low against the U.S. currency.
A stronger dollar often encourages non-U.S. holders of gold to sell the metal to lock in a higher profit in their own currencies.
Technical analysis suggested spot gold could fall to $1,569 during the day, Reuters market analyst Wang Tao said.
Asia's physical market was lacklustre in the final week of the year, with premiums steady in Singapore and Hong Kong, dealers said.
"There is not too much activity as prices circle around the $1,600 level," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong, but added buying from China had been steady. (Additional reporting by Rujun Shen; editing by James Jukwey)
