The precious metal fell earlier in line with the softer euro after the ECB cut interest rates by a larger-than-expected 75 basis points.

However, a turnaround in the single currency later in the session has encouraged buying of gold as a hedge against dollar weakness.

Spot gold was quoted at $772.45/774.45 an ounce at 1553 GMT from $772.60 an ounce in New York late on Wednesday.

“Gold is mirroring the directions in euro-dollar after the ECB rate cuts,” said Pradeep Unni, a senior analyst at Richcomm Global Services.

“The dollar also seems to be discounting the gains ahead of the non-farm payrolls data scheduled tomorrow,” he added.

The ECB cut its benchmark rate by three-quarters of a point to 2.50 percent, its lowest level in nearly 2-1/2 years, as inflation plummeted and the euro zone economy sank deeper into recession.

This followed a full percentage point cut to 2 percent by the Bank of England.

Gold initially softened a touch on the news, but expectations of rate cuts prevented a larger reaction.

“The ECB cut by more than was originally expected, but overall a lot of it was already priced in,” BNP Paribas analyst Michael Widmer said.

In the slightly longer term, rate cuts are likely to benefit gold if they increase liquidity, analysts said.

“The recent sharp dip in inflation pushed up real interest rates, exerting pressure on gold,” Commerzbank said in a note. “Generous rate cuts are therefore good for gold as they again reduce the opportunity costs involved in holding it.”

Crude prices, which had also weighed on gold in earlier trade, also retraced some losses as the dollar weakened and equities turned positive.

Traders turned their attention to U.S. non-farm payrolls data due on Friday for clues as to the next direction of the currency markets, and therefore of gold.

Physical demand eased in some of gold’s traditional markets as traders awaited price falls. Indian buyers looked for prices of around $740 an ounce before making purchases, dealers reported.

Platinum steadies

Platinum prices were steady, but held only a touch over those of gold, as traders worried about the impact of the recession on carmakers, who account for around half of all demand for the white metal.

“Concerns over industrial demand for the metals - particularly from the auto sector - will continue to keep prices under pressure for the time being,” Standard Bank analyst Leon Westgate said in a note.

“In the background however, mounting production cutbacks and mine closures suggest that there may be a very rapid price recovery once the first signs of increased metals demand start to emerge,” he added.

Spot platinum was quoted at $789/809 an ounce, from $793.50 in New York trade late on Wednesday. Its sister metal palladium was at $170.50/178.50 an ounce against $171.

Zurich Cantonal Bank said holdings of its platinum-backed exchange-traded fund rose 27 percent to 105,200 ounces on Dec 1, from 83,000 ounces in September. Its palladium-backed ETF saw inflows of 12 percent in the same period.

Among other precious metals, spot silver slipped to $9.46/9.54 an ounce from $9.63.