US gold fell 2 percent on Wednesday to its lowest in nearly two months, tracking cash gold prices, as the dollar retained its strength

The dollar index rose to an 11-month high, Asian shares drifted lower and the euro weakened after the US central bank failed to take any new steps to stimulate growth.

Investors, unnerved by the possibility of a mass credit downgrade in the euro zone as soon as this week, are watching Italy's 5-year debt sales later in the day after bond yields rose on Tuesday.      

'If we see weak demand for bond sales in Italy and Spain, it will again fuel concerns about the debt problem in Europe and cause a further sell-off in markets,' said Ong Yi Ling, an analyst at Phillip Futures.      

But the 200-day moving average just below $1,620 is expected to provide strong support for gold, Ong and other analysts said.     

The 200-day moving average has acted as a key support for almost three years, and once broken, could spell the end of gold's bull run, technical analysis suggested.

The most-active US gold futures contract tumbled as much as 2.3 percent to $1,625.3 an ounce, before recovering to $1,640.20 by 0307 GMT.  Spot gold edged up 0.4 percent to $1,636.99, after sliding 2 percent in the previous session and more than 4 percent so far this week. - Reuters