* Gold on track for worst week since late February * Coming Up; U.S. Producer prices; 1230 GMT (Updates prices, adds quotes) By Lewa Pardomuan SINGAPORE, April 12 (Reuters) - Gold was steady on Friday but prices were headed for their worst week since late February as strong stock markets lured away investors seeking better returns, while outflows from exchange-traded funds reflected the metal's shaky outlook.
An escalating tension between South and North Korea has done little to stir up safe-haven buying, and for gold to regain its lustre, the earnings season in the United States needs to disappoint investors who are betting on U.S. equities. Gold was steady at $1,561.40 an ounce by 0248 GMT. The prices were headed for a more than 1 percent drop this week, a third straight weekly drop. Gold has slipped around 7 percent so far this year after rising in the past 12 consecutive years, lagging gains of more than 11 percent for the S&P 500 index. "U.S. equities have continued to defy gravity," said CIMB regional economist Song Seng Wun, adding that this was taking away gold's shine. The market has also shrugged off tensions on the Korean peninsula, the analyst said. "Normally, given a rising tension, there will be flight to safety and gold will benefit. But I suppose at this point, while we are mindful of the increased risk, nobody really believes that the North Koreans will actually carry through on their threats." A Pentagon spy agency report concluded for the first time that North Korea likely has a nuclear bomb that can be launched on a missile, but U.S. defense and intelligence officials cast doubt on Pyongyang's atomic weapons capabilities. Setting geopolitical tensions aside, wary investors cut exposure to gold, with total holdings at the world's major bullion ETF falling to their lowest since early 2012. U.S. gold for June delivery was at $1,561.20 an ounce, down $3.70. In other markets, shares edged up in Asia on Wall Street's record-high close, while the yen faced fresh lows as traders bet the Bank of Japan's massive bond buying program will continue to weaken the currency. Japan's aggressive monetary stimulus initially supported gold this week, but investors were later distracted by signs the U.S. Federal Reserve could soon end its bullion-friendly bond buying programme and a possible gold sale by debt-ridden Cyprus. Heavily indebted euro zone nations such as Italy and Portugal could come under pressure to put their bullion reserves to work as a result of plans for Cyprus to sell gold to meet its financing needs. Fallout from the messy bailout of Cyprus will top the agenda of a two-day EU finance ministers meeting in Dublin beginning on Friday, with focus also on growing German reluctance over euro zone banking reform. The physical market was barely active, with jewellers in Thailand already away ahead of the Songkran holiday next week. Premiums for gold bars were unchanged in Singapore at $1.20 an ounce to the spot London prices. "We don't see much movement here. I guess the Thais are already on holiday and the Indonesians are quiet too," said a dealer in Singapore. Precious metals prices 0248 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1561.40 0.66 +0.04 -6.76 Spot Silver 27.64 0.04 +0.14 -8.72 Spot Platinum 1524.50 -7.50 -0.49 -0.68 Spot Palladium 728.15 0.15 +0.02 5.22 COMEX GOLD JUN3 1561.20 -3.70 -0.24 -6.84 5571 COMEX SILVER MAY3 27.59 -0.11 -0.39 -8.73 1301 Euro/Dollar 1.3117 Dollar/Yen 99.46 COMEX gold and silver contracts show the most active months (Editing by Himani Sarkar)