PRECIOUS-Gold price falls nearly 2 pct on hopes of US fiscal deal

* Gold at key chart support near $1,660/oz

* Further losses appear limited for now

* Coming up: U.S. housing starts Wednesday

(New story)

By Frank Tang

NEW YORK, Dec 18 (Reuters) - Gold fell almost 2 percent on

Tuesday to its lowest price since August, hit by heavy technical

selling and growing hopes that U.S. legislators are closer to

reaching a deal that would avert a fiscal crisis next month.

Bullion posted its biggest one-day drop since Nov. 2.

Analysts said that gold is at a turning point held by technical

support at its 200-day moving average and a multi-year rising

trendline near $1,660 an ounce.

"If gold is not able to defend those key supports, one

should expect a new wave of technical selling to continue," said

Adam Sarhan, chief executive of Sarhan Capital.

Spot gold was down 1.9 percent at $1,666.90 an ounce

by 2:02 p.m. EST (2002 GMT).

Earlier in the session, bullion hit $1,661.01, a 3-1/2 month

low for the weakest price since Aug. 31. However, further losses

appeared to be limited for now as it rebounded off its 200-day

moving average.

On charts, Tuesday's drop sent spot gold's relative strength

index (RSI) to 33, near an area below 30 which is traditionally

seen as oversold territory.

U.S. COMEX gold futures settled down $27.50 at

$1,670.70, with volume in line to near its 30-day average,

preliminary Reuters data showed.

Gold, a traditional inflation hedge, had been pressured by

worries that a failure of U.S. legislators and President Barack

Obama to clinch a deal to avert the so-called fiscal cliff of

automatic tax hikes and spending cuts starting in January would

send the U.S. economy back into a recession.

The price of bullion is down in 9 out of the past 11 weeks.

Gold prices are also on track to drop 6 percent for the

quarter to match their worst quarterly performance since the

third quarter of 2008 at the height of the global economic

crisis, marked by the bankruptcy filing of Lehman Brothers.

The metal tumbled as a deal in Washington looked closer as

House of Representatives Speaker John Boehner kept the support

of his Republican colleagues for compromises in talks with the

White House.

U.S. equities and crude oil rallied on the news.

Silver dropped 2 . 4 percent to $31. 49 an ounce.

CHOPPY MARKET

The gold market was particularly choppy as gaps appear to

remain between Democrats and Republicans.

The White House rejected Boehner's backup proposal, saying

it fails to meet Obama's call for a balanced approach and does

not put enough of a tax burden on the wealthiest Americans.

Boehner's concession last week to consider higher tax rates

on the wealthiest Americans -- an idea long fought by his party

-- signalled that a deal was possible before a year-end

deadline.

"You are seeing more confidence in the stock market on hopes

that they are getting very close to getting a deal done, and

that's why some of these assets which are defensive in times of

uncertainty are selling off," said Phillip Streible, senior

commodities broker at futures brokerage R.J. O'Brien.

Among platinum group metals, platinum was down 0.7

percent at $1,590.75 an ounce, while palladium fell 1.5

percent to $686 an ounce.

2:02 PM EST LAST/ NET PCT LOW HIGH CURRENT

SETTLE CHNG CHNG VOL

US Gold FEB 1670.70 -27.50 -1.6 1662.00 1704.40 155,445

US Silver MAR 31.669 -0.611 -1.9 31.400 32.600 39,578

US Plat JAN 1593.70 -14.80 -0.9 1590.00 1617.10 11,124

US Pall MAR 690.95 -7.35 -1.1 688.00 703.95 3,434

Gold 1665.90 -31.75 -1.9 1661.78 1702.86

Silver 31.490 -0.770 -2.4 31.380 32.520

Platinum 1590.75 -11.74 -0.7 1592.25 1614.50

Palladium 686.00 -10.47 -1.5 689.25 700.75

TOTAL MARKET VOLUME 30-D ATM VOLATILITY

CURRENT 30D AVG 250D AVG CURRENT CHG

US Gold 164,893 186,454 173,331 13.34 0.51

US Silver 42,131 60,369 52,524 20.98 -0.02

US Platinum 16,475 9,882 9,000 18.93 1.45

US Palladium 3,441 6,270 4,783

(Additional reporting by David Brough in London; Editing by

Phil Berlowitz and Grant McCool)

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