* SPDR Gold holdings rose 0.78% on Monday
* Global PMIs show manufacturing weakness
* U.S. threatens tariffs on $4 bln of additional EU goods (Adds quote, updates prices)
By Harshith Aranya and Eileen Soreng
July 2 (Reuters) - Gold prices edged higher on Tuesday after a steep fall in the previous session, as investors fretted about an economic slowdown amid weak global manufacturing data and U.S.-European trade ructions.
Spot gold XAU= was up 0.5% at $1,391.07 per ounce at 0603 GMT, after falling 1.8% in the previous session, its biggest one-day percentage decline since November 2016.
U.S. gold futures GCv1 were up 0.4% to $1,394.4 an ounce.
"The trade conflict is back to the centre stage today and the participants have shifted from U.S.-China to U.S and the European Union," said Margaret Yang Yan, a market analyst at CMC Markets.
The United States on Monday ratcheted up pressure on Europe in a long-running dispute over aircraft subsidies, threatening tariffs on $4 billion of additional EU goods, on top of products worth $21 billion that were announced in April. factory activity shrank across much of Europe and Asia in June, while growth in manufacturing cooled in the United States, keeping the world's policymakers under pressure to avert a recession. data gave investors a reminder of the recession risk ahead of us and that is part of the driver for safe haven," Yan said.
The rise in gold was capped by a strong dollar, which hovered near its highest in over a week, buoyed by an agreement between the United States and China to resume talks to resolve their trade war. USD/ market will now focus on U.S. non-farm payrolls data due on Friday, which should help investors better assess whether the Federal Reserve will cut interest rates later this month. non-farm payrolls data will be the signpost for a 25 or 50 basis point cut by the central bank... But even a 25 basis point cut is supportive in the medium-term for gold," said Stephen Innes, managing partner at Vanguard Markets.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.
"Supportive price action should be evident towards $1,380-$1,375, the extension through to $1,360 is likely to provide entry levels for fresh bullish positioning," MKS PAMP said in a note.
"We are again seeing inflows into ETF's following the decline below $1,400."
Holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, rose 0.78 percent to 800.20 tonnes on Monday. silver XAG= rose 0.3% to $15.17 per ounce, while palladium XPD= was up 0.1% at $1,548.00.
Platinum XPT= gained 0.8% to $836.68, after touching a near seven-week high on Monday.