* Spot gold to hover below $1,738 or retrace - technicals
* Indian c.bank asks banks to restrict financing of gold buys
* Holdings of SPDR Gold fall
By David Brough
LONDON, Nov 20 (Reuters) - Gold erased gains after better-than-expected U.S. housing data on Tuesday, but was underpinned by hopes the United States will resolve its fiscal problems and by buying in response to the Middle East conflict.
Gold turned negative and then clawed back into slightly positive territory after U.S. housing starts rose to their highest rate in more than four years in October, suggesting the housing market recovery was gaining steam, even though permits for future construction fell.
"The gold market is reacting to the positive housing data, which turned the dollar positive," said Andrey Kryuchenkov, analyst with VTB Capital.
A stronger dollar makes gold more expensive in other currencies.
Spot gold was up 0.02 percent at $1,731.7 an ounce by 1443 GMT.
U.S. gold traded down 0.15 percent at $1,731.80.
Gold was supported by expectations that U.S. lawmakers would reach a deal to avert automatic tax hikes and spending cuts in early 2013, which could otherwise trigger another recession.
Easing risks over Greece's debt crisis also underpinned gold prices, Brebner said.
Euro zone finance ministers are likely to approve the next tranche of loans to Greece on Tuesday although the money is unlikely to be disbursed before December and a deal on debt reduction may need further talks.
MIDDLE EAST CONFLICT
Gold can sometimes also be viewed as a safe haven investment, especially in times of great uncertainty.
The conflict between Israel and the Gaza Strip supported gold prices due to concerns over risks the violence could spread in the region, stoking worries over inflation through the potential impact on oil prices.
"Geopolitical tensions have always had an impact on gold," Ross Norman, chief executive of precious metals trader Sharps Pixley, said.
Norman and Brebner saw a potential linkage in oil and gold prices if the Middle East conflict deepened.
"If the oil market starts to move considerably higher based on Middle East risks, inflationary pressures would grow, and so gold could be seen as a way to hedge against inflationary pressures," Brebner said.
The U.N. chief called for an immediate ceasefire in Gaza on Tuesday and U.S. Secretary of State Hillary Clinton headed to the region with a message that escalation of the conflict was in nobody's interest.
Kryuchenkov said a resolution of the Gaza conflict could weigh on gold prices as the precious metal would lose its safe haven appeal.
Brebner saw no impact on the gold price from France's rating downgrade by Moody's, saying it had been priced into the market.
World shares and the euro steadied on Tuesday after an initial fall in reaction to France losing its top-notch credit rating from Moody's, with shares maintaining sharp gains from the previous day as investors await a deal for Greece.
Technical analysis suggested spot gold may hover below a resistance at $1,738 per ounce for one trading session before breaking this level and rising into a target zone of $1,746-$1,749, according to Reuters market analyst Wang Tao.
Indian banks have been asked by the Reserve Bank of India to restrict financing of purchases of gold in the form of bullion, jewellery and coins or units of exchange traded funds, in the latest measure to restrict gold imports to counter a ballooning fiscal deficit.
CITI SEES GOLD AT $1,749/OZ IN 2013
Citi expected gold to rise to an average price of $1,749 an ounce in 2013 from 2012's $1,679, peaking in the first quarter (1Q) at close to $1,800, as the improving U.S. economy and a stronger dollar limit the upside, it said in a research note.
"Gold may see another short-lived bounce in 1Q13 from further Fed action to replace the ending OT2 (Operation Twist), but signs of fatigue are increasingly apparent," the report said.
The Fed's Operation Twist stimulus programme extends the maturity of the central bank's Treasuries holdings in a bid to lower mortgage rates and other long-term borrowing costs.
Citi forecast silver to average $31 an ounce next year, down from this year's $31.30, and to further decline to $26.50 in 2014, as the demand picture is expected to remain slow while supply may continue to rise.
Spot silver inched down 0.06 percent to $33.08 an ounce, after rising 2.5 percent in the previous session.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, fell 0.03 percent on Monday from Friday, while those of the largest silver-backed ETF, New York's iShares Silver Trust fell 0.45 percent on Friday from Thursday.
Platinum edged up 0.16 percent to $1,573.24, while sister metal palladium was last at $639.22, up 0.35 percent.
