China's official Purchasing Managers' Index showed the manufacturing sector expanded modestly in January, with the index reading inching up to 50.5 from 50.3 in December, above a 49.5 reading forecast.

"The short-term trend (for commodities) is still favourable, especially after encouraging data from China today," said Peter Tse, director at ScotiaMocatta in Hong Kong, but warned about increased volatility as a result of uncertainties over the euro zone debt crisis .

Spot gold was little changed at $1,738.10 an ounce by 0319 GMT, off a nearly two-month high of $1,747.39 hit in the previous session. US gold traded flat at $1,738.30.

Hope for further monetary easing from the United States and the euro zone run high and will likely support gold, especially after the US Federal Reserve Chairman Ben Bernanke hinted at the possibility of more asset buying last week.

Physical buying interest remained muted after China returned from the Lunar New Year holiday earlier this week.

"There's no physical buying interest at this price level," Tse said.

Data due later in the day include the euro zone manufacturing survey and the Institute for Supply Management index from the United States. The euro zone flash inflation for January and US January employment data from ADP are also expected.

The reports were likely to show many economies are seeing a sluggish start in 2012 amid slowing demand, putting central banks around the world under pressure to keep an accommodative policy to support growth.

Copyright Reuters, 2012