Gold pared most of its daily gains Tuesday but still closed in positive territory for a second straight day. The metal's hedge appeal was diminished as the dollar stabilized against other major currencies in afternoon trading.

June-dated gold finished at $904.30 per ounce, a gain of $2.10 for the session. Prices touched as high as $916.70 earlier in the day.

The dollar bounced back against its major rivals on Tuesday in New York. The greenback had hit a fresh monthly low against the euro and multi-month low against the pound earlier in the day. Gold usually moves opposite the dollar because of the precious metal's hedge value.

Federal Reserve Chairman Ben Bernanke said in testimony before the Joint Economic Committee that the U.S. economy has contracted sharply since last autumn, although he said that recent data suggests that the pace of contraction may be slowing.

The Fed chairman said that recent data shows some signs that the beleaguered housing market may be bottoming, but also noted that the available indicators of business investment remain extremely weak.

San Francisco Federal Reserve Bank President Janet Yellen will speak on the financial turmoil at the Hass Business School at the University of California-Berkeley at 7 p.m.

The U.S. government is expected to direct about 10 of the 19 banks that have undergone stress tests to bolster their capital. This comes from a Wall Street Journal report citing several people familiar with the matter.

The Institute for Supply Management said its index of activity in the service sector rose to 43.7 in April from 40.8 in March, with a reading below 50 indicating a contraction in the sector. Economists had been expecting a more modest increase to a reading of 42.2.

The price of gold gained $14 on Monday and topped the $900 an ounce mark again. The metal's hedge appeal was boosted by a weaker dollar as traders turned to higher-yielding currencies

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