Gold edged down on Wednesday as investors shifted some of their money into firming equities, while a drop in ETF holdings could prompt more selling as bullion struggles to hold above $1,190 an ounce.

Although purchases from jewelers offered some support, trading was thin ahead of euro zone bank stress test results this week, which some analysts say could soothe concerns about how European banks would cope with deterioration in the region's economy and financial markets.

Gold, which hit an intraday low of $1,188.35 an ounce, fell $2.60 to $1,188.80 by 0537 GMT (1:37 a.m. EDT). It dropped to a two-month low at $1,175.35 on Tuesday before rebounding sharply to above $1,190 on chart-based buying. Gold struck a record in late June on worries the European debt crisis would spread.

I think the market is heading south for the short term. Only a weakening dollar can push up the market a little bit. If it can't break (above) $1,200 in the coming days, it will test the downside one more time, said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

I would say, it would gradually fall to $1,150, said Leung, referring to a level last seen in late April.

U.S. gold futures for August delivery dropped $3 to $1,188.7 an ounce.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P) said its holdings fell nearly 0.5 percent to 1,308.128 tonnes by July 20 from 1,314.211 on July 15. The holdings hit a record at 1,320.436 tonnes on June 29.

The market is relatively quiet. Buying from Thailand continues but I must say they are not really active, said a physical dealer in Singapore. Premiums for gold bars are stable at 80 cents.

Asian stocks rose on Wednesday as investors cheered Apple's strong earnings and on optimism that China may roll back policy tightening measures later this year. The MSCI index of Asia Pacific ex-Japan stocks .MIAPJ0000PUS rose 0.4 percent.

The euro inched up against the dollar ahead of euro zone bank stress test results on Friday and U.S. Federal Reserve Chairman Ben Bernanke's semi-annual testimony before Congress on Wednesday and Thursday, with investors waiting for comments that could boost speculation about easier monetary policies.

The upside is kept at a recent high $1,194, but I think the market lacks direction. The market is waiting for the stress result in Europe, said a dealer in Hong Kong. I still have bearish views on the market even though it has rebounded from recent lows.

Europe's assessment of how 91 banks would cope with another economic downturn aims to restore market confidence after the Greek crisis sparked fears the euro zone could unravel and leave banks nursing major losses on government debt.

(Editing by Ed Lane)