BENGALURU (Reuters) - Gold edged higher on Thursday as the U.S. dollar weakened against other currencies on bets that central banks in Europe were preparing to scale back monetary stimulus, but the bullion's gains were capped by a surge in equities.
The dollar index, which tracks the greenback against a basket of six major rival currencies, fell to its weakest since early October on Thursday at a low of 95.754.
A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies and can increase demand.
Spot gold rose 0.2 percent to $1,251.87 per ounce at 0416 GMT.
U.S. gold futures for August delivery rose 0.2 percent to $1,251.80 per ounce.
"Despite the headwinds being generated by a weaker dollar, more substantial gains in gold were held in check on account of the fact that the U.S. stock market soared on Wednesday," said INTL FC Stone analyst Edward Meir.
"We suspect gold will likely inch higher as we head into the latter part of the week on account of dollar weakness, although stronger U.S equities and rising rates should cap a stronger move," he added.
Hawkish comments from European Central Bank President Mario Draghi, and Bank of England Governor Mark Carney have raised expectations of a tighter monetary policy in Europe.
Draghi earlier this week hinted that the ECB could trim its stimulus this year, but according to some sources his remarks were intended to signal tolerance for a period of weaker inflation and not an imminent policy tightening.
Meanwhile, Governor Carney said on Wednesday a rise in British interest rates is likely to be needed and the Bank of England will debate when to do so "in the coming months".
Comments from two top policymakers from Bank of Canada have increased hopes of an interest rate hike next month.
"Gold strength is not enough if compared to the weakness in dollar. If this weakness in dollar continues, I think gold should go up a bit more," said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank.
MSCI's broadest index of Asia-Pacific shares outside Japan on Thursday gained 0.9 percent to its highest since May 2015. This follows Wednesday's sharp Wall Street rally when the benchmark S&P 500 index scored its biggest one-day percentage gain in about two months.
Among other precious metals, spot silver was up 0.4 percent at $16.84 an ounce after touching a two-week high of 16.89 early in the session.
Platinum was 0.2 percent higher at $921.11, and palladium gained 0.6 percent at $860.50.
(Additional reporting by Koustav Samanta in Bengaluru; Editing by Richard Pullin and Sunil Nair)