* Funds sell out of New York's largest physical gold fund
* Gold finds some relief as U.S. data hurts stocks
* Physical buying seen underpinning
(Recasts throughout; adds comments, byline, changes dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, May 16 (Reuters) - Gold dropped to a
four-week low on Thursday, as renewed liquidation in
gold-exchange traded funds and its recent drop below the
$1,400-per-ounce level spooked bullion investors, prompting them
to favor other assets.
Traders said the fall below $1,400 in the previous session
triggered heavy selling and that the yellow metal might retest
two-year lows of $1,321.35 touched on April 16, when it recorded
the worst daily loss for 30 years.
"Bullion's price break below the psychological $1,400 an
ounce level may introduce additional near-term pressure on gold.
However, physical bullion demand is likely to pick up further,
given the price drop, to help stem potential losses," said James
Steel, chief precious metals analyst at HSBC.
Spot gold was down 0.4 percent at $1,386.05 by 5:28
p.m. EDT (2128 GMT).
U.S. gold for June delivery settled down $9.30 at
$1,386.90 an ounce.
Rallying Wall Street stock indexes have hurt bullion's
appeal as an alternative investment this year, leading to hefty
outflows from gold-backed exchange traded funds.
The largest gold ETF, the SPDR Gold Trust, reported a
further 4.5 tonne-drop in its holdings on Wednesday to 1,047.14
tonnes - the lowest since March 2009.
"We're seeing some of the pension funds selling via the
ETFs, which is a bit of a worrying sign," said Standard
Chartered analyst Daniel Smith.
Soros Fund Management LLC joined funds including Northern
Trust and BlackRock in lowering its investment in the SPDR Gold
Trust in the first three months of the year, a SEC filing
showed on Wednesday.
Gold investment nearly halved in the first quarter as a
brighter view of the U.S. economy prompted investors in the West
to favor assets such as stocks over bullion, the World Gold
Council said on Thursday.
GOLD PREMIUMS RALLY IN ASIA
Lower gold prices have attracted physical buying in China.
The world's second-largest consumer after India bought a large
amount of gold on Thursday.
Premiums for gold bars rallied to all-time highs in Hong
Kong and Singapore on Thursday after bullion's steepest drop
since its April selloff fueled another round of buying,
constricting supply. That, however, did not counterbalance
weaker investment demand.
In other precious metals, silver edged up 0.4 percent
to $22.66 an ounce. Platinum fell 0.5 percent to $1,479
an ounce, while palladium rose 1.6 percent to $736 an
5:28 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold JUN 1386.90 -9.30 -0.7 1368.00 1397.00 221,681
US Silver JUL 22.659 0.001 0.0 22.060 22.770 44,017
US Plat JUL 1485.60 -5.10 -0.3 1470.00 1492.90 11,934
US Pall JUN 740.75 11.70 1.6 716.00 743.00 5,683
Gold 1386.05 -6.24 -0.4 1370.33 1397.91
Silver 22.660 0.090 0.4 22.150 22.800
Platinum 1479.00 -7.00 -0.5 1471.50 1491.50
Palladium 736.00 11.50 1.6 718.75 740.25
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 246,876 230,923 177,992 23.78 -0.35
US Silver 45,950 78,524 55,088 34.65 5.01
US Platinum 12,996 12,218 11,815 19.62 -0.09
US Palladium 7,046 5,819 5,062
(Editing by David Goodman, James Jukwey, G Crosse)