May 2 (Bloomberg) -- Gold fell on expectations the dollar may strengthen against the euro, reducing the appeal of the precious metal as an alternative investment to the U.S. currency.

European manufacturing may have contracted for the first time in almost two years in April, according to a survey of economists. Gold for immediate delivery has fallen 5 percent from a 16-year high in December as the dollar rose.

``The growth out of the Euro region has been lower than expected, so we do expect gold to weaken a bit this week,'' said Daniel Hynes, a resources analyst at Australia & New Zealand Banking Group Ltd. in Melbourne.

Gold for immediate delivery fell as much as $1.93, or 0.4 percent, to $432.46 an ounce at 3:56 p.m. Sydney time. It closed at $434.39 an ounce at 5 p.m. in New York on Friday.

The dollar traded at $1.2856 against the euro at 3:59 p.m. Sydney time, from $1.2863 late yesterday in New York according to EBS, an electronic currency dealing system. The dollar rose 0.07 percent yesterday.

An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc probably fell to 49.8 from 50.4 in March, according to the median of 35 estimates in a Bloomberg survey. A reading below 50 indicates contraction.

The European Central Bank will announce its next interest rate decision in Berlin on May 4, and economists expect the bank to keep its benchmark rate at 2 percent, a Bloomberg survey showed.

Fed Meeting

The U.S. Federal Reserve is expected to raise its target for overnight bank lending to 3 percent, below the 3.1 percent annual U.S. inflation rate in March, when it meets May 3, based on a Bloomberg survey of 93 economists.

``This a cooling period ahead of the FOMC meet,'' said Vineet Kumar Rai, assistant vice president at Mumbai-based Angel Commodities Broking Pvt.

In India, the world's biggest gold consumer, prices for June delivery fell 15 rupees, or 0.2 percent, to 6,214 rupees per 10 grams, or 19,325 rupees ($443) per ounce, at 10:45 a.m. on the Multi Commodity Exchange of India Ltd. in Mumbai. Gold closed at 6,229 rupees per 10 grams on Saturday.

Gold for June delivery fell $1.60, or 0.4 percent, to $434.50 an ounce in after-hours trading on the Comex division of the New York Mercantile Exchange at 3:58 p.m. Sydney time.

To contact the reporter on this story: Tan Hwee Ann in Melbourne at hatan@bloomberg.net; Debarati Roy in Mumbai at droy5@bloomberg.net.

Last Updated: May 2, 2005 02:16 EDT