US gold edged up 0.1 per cent to $1,780.80 on Tuesday

Gold held steady on Tuesday, afterStandard and Poor’s downgrade of Italy’s credit rating, while a stronger dollar weighed on sentiment ahead of a key US Federal Reserve policy meeting.

In the latest blow to the euro zone, ratings agency Standard & Poor’s cut Italy’s sovereign credit rating by one notch, saying its economic growth prospects were getting weaker and planned reforms by the government would not help much.

The euro lost about half a per cent versus the dollar, nearing a seven-month low against the greenback, also pressured by news that two Chinese state banks had stopped trading currency swaps with some European lenders.

“Ahead of the Fed meeting and G20, after S&P and Bank of China news, people just want to be as safe as they can, and dollar is probably the safest bet in the near term,” said Nick Trevethan, Senior Commodities Strategist at ANZ.

The dollar’s advantage lies in its sufficient pool of liquidity, he added.

The wild swings in gold prices in the past few weeks have also upset some gold investors.

Bank of China , a big market-maker in China’s onshore foreign exchange market, has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, causing some distress in market sentiment.

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