* U.S. dollar rises vs basket of currencies
* Fears that Fed may halt bond-buying scheme dent gold's appeal
* Spot silver off 2.4 percent (Updates prices)
By Clara Denina
LONDON, May 21 (Reuters) - Gold, down in seven of its last eight sessions, fell by around one percent on Tuesday on a firm dollar, weak technical signals and speculation that the U.S. Federal Reserve might rein in its stimulus programme.
Gold has been hit by a shift in investment into higher-yielding equities since the start of the year on signs of an improving global economic outlook, particularly in the United States.
Spot gold hit a session low of $1,374.95 an ounce and was trading down 1 percent at $1,378.96 at 1154 GMT, unable to sustain initial gains around the $1,400 level.
It touched its weakest since April 16 at $1,338.95 on Monday, before gaining 2.6 percent in U.S. trade and snapping a seven-session slide that was its longest losing streak since March 2009.
U.S. gold futures for June delivery were down 0.5 percent to $1,377.10 an ounce.
"The market was caught horribly short yesterday, so there was some buying this morning. But the dollar (got) stronger, gold didn't manage to break above $1,400 and sales started again," Marex Spectron head trader David Govett said.
"The market is being driven by algos trading on the CME (Chicago Mercantile Exchange) platform while the real money, the big funds, are not playing in this."
Algorithmic trading uses advanced mathematical models for making transactions.
The dollar was up 0.4 percent against a basket of major currencies, but below its recent three-year high, on uncertainty over the message that Fed Chairman Ben Bernanke will deliver when he speaks to the U.S. Congress on Wednesday.
The market will also focus on the FOMC minutes from the central bank's April meeting.
"Should Bernanke encourage perceptions that the Fed could move somewhat earlier than expected, gold could get hurt as a change in stance may finally usher in higher interest rates," INTL FCStone analyst Edward Meir said.
On Monday, Federal Reserve official Charles Evans said the central bank could continue its bond buying through the summer, but end it in the autumn if the central bank became confident about its jobs outlook.
Tighter monetary policies in the United States would weigh on gold as they should strengthen the dollar, making the metal more expensive for holders of other currencies.
Holdings in SPDR Gold Trust, the largest gold-backed exchange-traded fund, continued to shrink to 1,031.50 tonnes on Monday, their lowest in more than four years.
Physical demand strengthened in China, while buying in India, the world's top gold consumer, has been slowing as its central bank tries to rein in the country's deficit with steps to cut gold and silver imports, which shot up 138 percent in April.
SILVER UNDER PRESSURE
Silver remained under pressure, but well off Monday's lows, when it slid nearly 10 percent to a 2-1/2 year trough, on heavy fund liquidation in Asian trade and generally weak fundamentals for the metal.
Spot silver was down 2.2 percent at $22.38 an ounce, but still $1.60 higher than the previous session's lows, having staged a short-lived recovery in U.S. trade.
Holdings of the largest silver ETF, the iShares Silver Trust , fell to their lowest since mid-January at 329.631 million ounces on Monday.
"For now, the focus remains on the fading appeal of gold, and as a result, those who have used silver as a way of expressing exposure to the gold price have followed this trend," UBS analyst Joni Teves said in a note.
Platinum fell 1.5 percent to $1,465.50 an ounce and palladium dropped 1.1 percent to $738.50 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; editing by Jason Neely and William Hardy)