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Asia Gold-India discounts drop to nine-month low on pick up in festive demand

By Rajendra Jadhav and Sethuraman N R

MUMBAI/BENGALURU, Oct 14 (Reuters) - Demand for gold in India, the world's second-largest consumer, picked up as the festive season began and discounts narrowed, while demand across rest of the Asia continued to improve.

Gold traded within a narrow range throughout the week, after falling nearly 5 percent in the previous week.

Gold discounts in India narrowed to the smallest level in nearly nine months as prices fell during a key Hindu festival Dussehra boosted retail demand.

Dealers were offering gold at $2 an ounce discounts to official domestic prices this week, the narrowest since the week ending on Jan. 23. Last week discounts were $4.

"During Dussehra demand was very good. Jewellery shops were crowded after a long time," said Fatechand Ranka, a jeweller based at Pune in western state of Maharashtra. India celebrated the Dussehra festival on Tuesday.

"At the end of the month we have Diwali festival. If prices remain at the current range, then certainly demand will remain robust even during Diwali."

Demand for gold usually strengthens in the final quarter of the year as India gears up for the wedding season as well as festivals such as Diwali and Dussehra, when buying the precious metal is considered auspicious.

Gold prices in India were about 29,700 rupees per 10 grams on Friday, after falling to 29,300 rupees on Oct. 7, the lowest level since June 6.

"The improvement in retail demand has provided confidence to jewellers. They are now actively buying," said a Mumbai-based bullion dealer with a private bank.

Refiners and banks are raising imports as a sharp fall in discounts in the last few weeks made their business viable, he said.

Demand in top-consumer China rose after the week-long National Day holidays and premiums were quoted around $4 an ounce against the international benchmark.

"A healthy premium of local China gold prices to world price is encouraging physical purchases and is evidence of good demand," HSBC analyst James Steel said in a note.

"The resumption of China buying could be important."

In Singapore, premiums were mostly unchanged at 50 to 60 cents an ounce and prices were quoted at a premium of around 60 to 90 cents in Hong Kong.

"People are loving to buy at these levels. A lot of them are using physical gold as a hedge against the volatile stock markets," said Ronald Leung, chief dealer, Lee Cheong Gold Dealers, Hong Kong.

Prices in Tokyo were at a premium of 25 cents an ounce, unchanged from last week.

(Reporting by Rajendra Jadhav in Mumbai and Nallur Sethuraman in Bengaluru; Editing by Christian Schmollinger)

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