* Gold breaks below $1,600/oz after Cyprus resolution
* U.S. home and manufacturing data support shares, dollar (Updates prices)
By Clara Denina
LONDON, March 26 (Reuters) - Gold fell on Tuesday as safe-haven demand ebbed after Cyprus clinched a last-ditch rescue deal, and U.S. data showing continued gradual improvement in the economy also weighed.
While Cyprus's deal to shut down the country's second largest bank in return for 10 billion euros ($13 billion) in rescue funds removed the immediate risk of a financial meltdown, the European Central Bank worked to allay anxiety that this could have negative implications for other euro zone states.
Gold, which typically benefits from economic uncertainty, pushed to a three-week high of $1,616.36 an ounce last week on worries around the Cyprus bailout but dropped to a 1-1/2 week low of $1,589.49 on Monday after the 11th-hour rescue.
Spot gold was down 0.4 percent at $1,598.76 an ounce at 1513 GMT. Prices were however still on course for their first monthly gain - up around one percent so far this month - after posting declines in every month since October.
U.S. gold futures for April delivery stood at $1,598, down 0.4 percent, amid low volumes ahead of the April contract expiry.
"The Cyprus support is not there anymore and the U.S. data, which on balance has been quite good today, is also being a drag for the market," HSBC analyst James Steel said.
"I think the market is going to be sluggish and trade will continue to hover around $1,600 in coming sessions."
U.S. DATA HELPS DOLLAR, SHARES
European and U.S. shares rose and the dollar held steady against a basket of currencies after data on home prices and manufacturing showed the economy continues to improve slowly.
U.S. single-family home prices rose in January at the fastest pace in more than six years and demand for long-lasting U.S. manufactured goods surged in February. However, sales of new U.S. single-family homes fell more than expected in February.
A firmer dollar makes commodities priced in the greenback more expensive for holders of other currencies.
Euro zone bond trading was hesitant as investors attempted to digest a series of comments from senior eurozone officials about whether or not the Cyprus bailout was setting a precedent when it came to levies on individual savers.
With easy monetary policy from central banks stoking concerns of inflation and the implications of the Cyprus deal for the euro zone, the appeal for gold is however expected to hold.
Russia increased its gold holdings for the fourth straight month in February, and a number of central banks in emerging economies also added gold to their official reserve, underscoring central banks' appetite for gold.
Holdings of SPDR Gold Trust, the world's biggest gold-backed exchange-traded gold, were unchanged at 1,221.26 tonnes from a day earlier.
Investors have been monitoring the appetite in gold ETFs as a barometer of interest in the metal. SPDR Gold Trust holdings have dropped nearly 130 tonnes so far this year, more than wiping out the 96 tonne increase in 2012.
Spot silver fell 0.3 percent to $28.71. Platinum was down 0.9 percent at $1,563.24, while palladium edged down 0.2 percent to $753.72. (Editing by William Hardy)