* Dollar dips from eight-month high ahead of ECB, payrolls
* Short positions in COMEX gold at record high
* Gold posts biggest monthly drop in 2-1/2 years in Nov (Repeats to additional subscribers)
By Jan Harvey
LONDON, Dec 1 (Reuters) - Gold rose for a second day on Tuesday, rebounding from last week's 5-1/2 year low, as a retreat in the dollar prompted investors to cover short positions ahead of a European Central Bank (ECB) meeting and U.S. payrolls data this week.
The dollar slid from a 7-1/2-month high versus the euro, with traders judging that a significant amount of further monetary easing had already been priced into the single currency ahead of Thursday's ECB meeting.
Spot gold was up 0.4 percent at $1,068.21 an ounce at 1507 GMT, while U.S. gold futures for February delivery were up $2.60 an ounce at $1,067.90. Spot gold hit its lowest since February 2010 last week at $1,052.46.
Gold posted its biggest monthly drop in 2-1/2 years in November as investors positioned for a U.S. rate hike this month. Rising rates are expected to increase the opportunity cost of holding non-yielding bullion, while boosting the dollar.
"Gold is still following the dollar ahead of the Fed decision," MKS' head of trading Afshin Nabavi said. "It ran out of breath on Friday around $1,051-ish, but having said that we have to break above $1,095 for some fresh blood."
"The physical demand is not that bad," he added. "Yesterday we saw some good buying which triggered a few stops."
In the physical markets, there were signs of robust demand. The U.S. Mint's sales of American Eagle coins rebounded in November from the previous month's slump.
Premiums on the Shanghai Gold Exchange, an indicator of buying strength at top consumer China, were at a healthy $5-$6 an ounce.
Data from the U.S. Commodity Futures Trading Commission showed on Monday that hedge funds and money managers added to their net short position in COMEX gold contracts in the week to Nov. 24.
That has led some to judge that short position holders have become over-extended.
"Gold has the potential for further short covering to take prices higher, especially if emerging market physical demand stays strong," HSBC said in a note. "But investors will look to two events this week that may influence bullion."
"The ECB rate announcement on Thursday 3 December could impact the EUR if the bank further loosens policy ... (while) gold could weaken if the jobs figure is significantly above mean expectations."
Silver XAG= was up 0.6 percent at $14.17 an ounce, while platinum XPT= was up 1.1 percent at $844.56 an ounce and palladium XPD= was 0.6 percent higher at $546.72 an ounce.