Gold extended losses to trade below $900 an ounce on Thursday, after registering its biggest daily percentage drop in more than two weeks the previous day, as stock markets rallied and the U.S. Fed calmed inflation fears.

Bullion’s Monday rally to a three-month high above $900 had also spurred selling in the physical market, with dealers reporting an increase in the supply of scrap in Southeast Asia and also India, the world’s main gold consumer.

India’s gold imports plunged more than 90 percent to just 1.2 tonnes in January 2009, from 18tonnes at the same month last year, due to high prices and amplestocks, the Bombay Bullion Association said.

“I think that’s probably the fact that’s weighing on the gold price at the moment,” said David Moore, commodities strategist at Commonwealth Bank of Australia in Sydney.

“I would have thought you might have seen gold a little bit better supported still by investor interest,” said Moore, who expects gold to trade at $875 by the end of March and $890 by end-June.

Gold was trading at $882.85 an ounce, down $2.75 from New York’s notional close on Wednesday, when it hit an intraday high of $902.90 before falling as low as $879.10.

Gold was below a three-month high of $915.30 hit on January 26, but it has bounced around 10 percent since falling to a 1-month low around $801 hit two weeks ago as investors sought safe-haven assets amid turmoil in the financial markets.

The dollar firmed against the yen after the Fed kept interest rates near zero and said it was prepared to buy long-term Treasury debt if that would help improve credit conditions. The euro slipped to $1.3123.

Japan’s Nikkei average climbed 1 percent, boosted by exporters such as Honda Motor on a softer yen, while financial shares jumped amid optimism about the U.S. government’s rescue plan for banks.

U.S. President Barack Obama’s economic stimulus plan, possible creation of a government “bad bank” to absorb toxic assets and Fed readiness to buy long-term bonds all gave hope of forceful U.S. action soon to help ease the global financial crisis.

“I will have to say that when we approach the $900s, the physical players are coming in to sell,” said a dealer in Singapore. “But the recent decline still looks OK. The longer-term uptrend is still intact.”

“The $880-region should provide good support, and the next support will probably come in around $860.So basically, this current correction is not alarming, I guess, as long as we hold above $860,” said the dealer, referring to two highs seen this month.

Oil slipped to around $41 a barrel.

Platinum was trading at $943.50 an ounce, down $10.00 from New York’s notional close.

New York gold futures fell $4.5 an ounce to $883.6 in electronic trade.

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