* All eyes on euro zone summit on Greece later on Tuesday
* Signs of progress towards Greek deal could hurt prices
* Speculators boost short positions in gold, CFTC data shows (Updates prices)
By A. Ananthalakshmi
SINGAPORE, July 7 (Reuters) - Gold fell on Tuesday as markets awaited news from a euro zone summit to see whether progress would be made in the Greek debt crisis, even as increasing short positions in the precious metal underlined bearish sentiment towards bullion.
Gold has so far failed to see significant safe-haven bids sparked by the ongoing Greek crisis as fears of contagion seem to be limited. Strength in the dollar has also capped gains.
Attempts at higher prices have proved futile, with traders selling into rallies and bringing prices quickly lower.
Spot gold XAU= eased 0.1 percent to $1,168 an ounce by 0630 GMT. The metal rose as much as 0.6 percent early on Monday following Greek rejection of the terms of a bailout package, but gave up most gains to close up just 0.2 percent.
U.S. gold futures GCcv1 dropped 0.5 percent on Tuesday.
The price moves show increasing evidence that gold cannot hold its weight even in the face of market jitters, said Howie Lee, an analyst at Phillip Futures.
"While that suggests gold has lost some appeal as a safe-haven asset, more importantly it signifies the loss of interest in gold as an investment vehicle," Lee said.
Investor positioning based on U.S. Commodity Futures Trading Commission data on Monday reflected the same.
Hedge funds and money managers increased their short positions 3088691MSHT to the highest on record in the week ended June 30. Non-commercial dealers boosted their short positions 3088691NSHT to a two-year high.
Though investors were still net long on gold, bullish positions fell sharply from a week ago.
Gold's upside has also been hurt by prospects of higher U.S. interest rates later this year, which would boost demand for the dollar and dent the appeal of non-interest-paying bullion.
In recent days, the weakness in the euro from the Greek crisis has supported the dollar. The dollar index .DXY was trading near a one-month high reached on Monday. USD/
For now, focus was on the euro zone meeting later on Tuesday, with any Greek debt deal likely to send gold prices below $1,150, a Sydney-based bullion trader said.
Athens is expected to bring a proposal for a deal to the summit after France and Germany told Greece on Monday to come up with serious proposals in order to restart financial aid talks. ID:nL8N0ZM0JD
"Any movement towards an agreement will likely mean that gold's staying power at current levels will prove to be short-lived," said INTL FCStone analyst Edward Meir.
PRICES AT 0630 GMT
Metal
Last
Change Pct chg
Spot gold
1168
-1.65
-0.14 Spot silver
15.66
-0.07
-0.45 Spot platinum
1057
-4.5
-0.42 Spot palladium
679.47
1.97
0.29 Comex gold
1167.3
-5.9
-0.5 Comex silver
15.65 -0.103
-0.65 Euro
1.102
DXY
96.49
COMEX gold and silver contracts show the most active months