May 31 (Bloomberg) -- Gold prices in New York fell the most in two weeks after France's rejection of the European Union constitution drove the euro lower against the dollar, eroding the appeal of precious metals as an alternative to U.S. assets.

The euro fell the most since January on concern the region's economic integration will slow. Gold has dropped 4.5 percent this year as the euro shed 9.2 percent against the dollar.

``There's been some damage to the euro because of the French voting down the EU constitution,'' said Robert Cameron, a precious- metals trader in New York at Mitsubishi International Corp., a unit of Japan's largest trading company. ``It's going to be difficult for the euro to have any rally, so gold will continue to slide.''

Gold futures for August delivery fell $3.80, or 0.8 percent, to $418.90 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage decline since May 12. Earlier, prices touched $415.80, the lowest since Feb. 10. A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.

The EU constitution, intended to streamline decision-making following the union's expansion to 25 members from 15 last year, would have created a permanent president and foreign minister and increase the role of the European Parliament.

A survey of 16,850 Dutch people yesterday found 53.2 percent of voters will reject the EU constitution, three days after a French vote resulted in 55 percent opposing.

The European economy won't collapse without a constitution, said Jeffrey Christian, managing director of CPM Group, a New York- based metals research company.

European Economy

``Selling the euro and gold based on this development is ill- placed,'' Christian said. ``The failure of the EU constitution doesn't necessarily have a major overall effect on the European economy. In a day or two, the euro will come back and so will gold.''

Gold still may decline in the medium term amid speculation the U.S. economy will outperform the European economy, some traders have said.

European business confidence fell to a 21-month low in May as oil prices at around $50 a barrel and unemployment near a five-year high dimmed prospects for growth, the European Commission said today.

European Central Bank policy makers may lower their 2005 growth estimate for the third time in six months when they meet on June 2, according to the median forecast of 21 economists polled by Bloomberg News. They will keep the benchmark interest rate at 2 percent, all 37 economists in a separate survey predicted.

The Federal Reserve lifted its target rate by a quarter point to 3 percent on May 3. Higher interest rates make holding gold less attractive.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

Last Updated: May 31, 2005 14:18 EDT