* European stocks rebound 3 pct, dragging gold lower
* Holdings of largest gold ETF fell 5 T on Friday-fund
* GRAPHIC-2016 asset returns: http://reut.rs/1WAiOSC (Updates prices, adds comment)
By Jan Harvey
LONDON, Feb 15 (Reuters) - Gold fell more than 2 percent on Monday as a rebound in stock markets pointed to sharper appetite for risk, pulling prices further from last week's one-year high.
The metal is coming off its strongest weekly rise in more than four years, having peaked at $1,260.60 an ounce on Thursday, its highest since Feb. 6 last year, as turmoil in global equities stoked safe-haven demand for the metal.
After rallying $200 to last week's peak from its January low, a retracement was to be expected, some analysts said.
Spot gold XAU= was down 2.5 percent at $1,206.50 an ounce at 1513 GMT, while U.S. gold futures GCv1 for April delivery were down 2.6 percent at $1,207.40.
European shares rallied 3 percent on Monday after China's central bank fixed the yuan at a much stronger rate, while the dollar rose against the yen and the euro. MKTS/GLOB FRX/
Sharp losses in stocks in recent weeks have led investors to scale back expectations for U.S. interest rate hikes this year, benefiting non-yielding gold.
"If the equity markets continue to rise, gold might be under pressure for a few more days," Commerzbank (DE:CBKG) analyst Daniel Briesemann said. "Nevertheless ... gold should be relatively well supported going forward. We may see a setback to $1,150, but then I think more people would step in."
"Rate hikes by the Fed are being priced out, while on the other side, the ECB will probably announce more QE in early March," Briesemann said. "Everyone's trying to weaken their currency, and in such an environment, gold should be in demand as a safe haven."
European Central Bank president Mario Draghi said the bank is ready to ease policy next month if financial market turmoil or the effect of low energy prices reduces inflation expectations. was also pressured as Chinese markets re-opened after the Lunar New Year holiday, with the metal around $60 an ounce above where it ended Feb. 5. That prompted some buyers to cash in gains. is lower because of the good bounce in equities and the Chinese selling," one Sydney-based trader said. "There is some profit-taking around."
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust GLD , fell just over 5 tonnes to 710.95 tonnes on Friday. That only slightly offset a net rise of just over 17 tonnes earlier in the week, however.
Data on Friday showed hedge funds and money managers boosted bullish bets in COMEX gold futures and options in the week to Feb. 9. XAG= was down 3.1 percent at $15.20 an ounce, while platinum XPT= was down 1.6 percent at $935.85 an ounce and palladium XPD= was down 0.9 percent at $515.75 an ounce.
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http://reut.rs/1WAiOSC
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