(REUTERS) -- Gold prices slipped below $1,660 an ounce in Europe on Thursday, extending their retreat from two-week highs into a third session, as the dollar recovered from a near one-month low and crude oil prices turned lower.

Spot gold was down 0.4 percent at $1,656.50 an ounce at 1134 GMT. It has struggled for traction after a rally early in the week sparked by Federal Reserve hints that accommodative monetary policy is set to persist.

We see some flow from Asian buyers, both from the bank-side of the market and from physical dealers, Credit Suisse analyst Tom Kendall said. At the same time, there's not a huge amount of selling pressure in gold right now either, so there's a lack of meaningful direction or flow on both sides.

He said the market attitude to gold was fairly neutral.

The market positioning is quite light compared to what it has been recently, he said. I think we are now treading water in the gold market until the next meaningful announcement on U.S. monetary policy, and I'd be looking forward to the next (Fed) meeting, which is on 24 and 25 April.

The ultra-loose policy of recent years has hurt the dollar and kept real interest rates, and hence the opportunity cost of holding gold, low.

Prices are awaiting fresh direction from U.S. data, which on Thursday includes a final reading of fourth-quarter growth, weekly jobless claims and corporate profits numbers. Strong data may undermine the case for a fresh round of monetary easing.

The euro fell against the dollar .DXY on Thursday as concerns about contagion from the euro zone debt crisis overshadowed a solid Italian bond auction. A stronger dollar tends to weigh on gold, which is priced in the U.S. unit.

Oil prices shed early gains to turn lower.

European shares edged down and safe-haven German bunds were up slightly. Spanish government bond yields led the rest of the euro zone periphery higher in a jittery market before details of Spain's budget on Friday and as some short-term investors offloaded Italian bonds after an auction. EUR>

Gold is likely to need significant fresh support from a move in the wider financial markets, as well as a drop in the dollar, to push it to fresh highs, analysts said.

U.S. gold futures for June delivery were down $2 an ounce at $1,658.50.

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Asset returns in 2012: link.reuters.com/muc46s

Commodity returns in 2012: link.reuters.com/faz36s

Gold correlation with dollar: r.reuters.com/ryx52s

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PURE DOLLAR CORRECTION

We have suspected that it would take much more than a pure dollar correction for sustained gains to $1,700 and beyond, especially now that bullion is strongly correlated to the broader equity market, and risk sentiment in general, VTB Capital said in a note.

It comes as little surprise, with the VIX volatility index - the global risk gauge - rallying to 2.5-week highs, that gold followed other precious metals with the broader market back in risk averse mode.

Appetite for assets seen as higher risk, like stocks and real estate, has recovered this year after a raft of forecast-beating U.S. data, which has also curbed expectations that a fresh round of monetary easing may be imminent.

Swiss bank UBS cut its 2012 gold price forecast to $1,680 an ounce from $2,050 previously, which it said partly reflects the metal's performance in the first quarter.

The view that the U.S. economic recovery is looking more sustainable is becoming increasingly accepted, it said. As acute macro stresses abate, investors are looking at other asset classes and to the growth story once again. Gold is moving off the centre-stage position it occupied for most of last year.

Nonetheless, the threat of a fresh downturn in the U.S. economy and of further credit stress, as well as ongoing official sector buying, higher oil prices and the low interest rate environment, will still underpin gold, it added.

Silver was down 0.5 percent at $31.84 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, rose back towards 52 on Thursday, close to a two-month high.

Spot platinum was up 0.4 percent at $1,635.70 an ounce, while palladium was up 0.5 percent at $645.20.