SINGAPORE/MUMBAI, July 26 (Reuters) - A rally in gold prices prompted some selling in Asia's physical gold market, but market participants feared the price rise would lose momentum as policy uncertainty keeps sentiment brittle.
Spot gold jumped 1.5 percent to a three-week high of $1,609.91 an ounce in the previous session, on growing speculation of more stimulus measures from central banks. It stood at $1,604.76 by 0740 GMT.
Bullion has been trapped in a $100 range above $1,530 over the past two months or so, as the uncertain outlook for monetary stimulus moves by the U.S. Federal Reserve kept gold bugs on edge.
In top gold consumer India, high prices of the precious metal combined with a weak local currency to spur scrap sales of gold.
"People have already come to sell," said Harish Choudhary of Jitendra Kantilal and Co, a scrap dealer in Mumbai, who purchased gold at 29,970 rupees per 10 grams from customers.
"We are expecting higher sales today as prices have risen to 30,000 rupees, as people will continue to come after they get to know about the prices on television and newspapers."
The front-month gold futures contract on the Multi Commodity Exchange (MCX) traded at 29,823 rupees per 10 grams ($1,657.7 an ounce), close to a near four-week high of 29,867 rupees hit in the previous session.
"There is no buying as prices are very high and liquidity is very tight," said Hirachand Gulecha, proprietor of Hira Traders, a wholesaler in Mumbai, who expects traders to resume buying at 27,000 rupees, down about 10 percent from current levels.
MARKET LACKS CONVICTION
"Clients are confused, not sure where prices will go next," said a Singapore-based dealer.
"We have seen exports out of Thailand, but meanwhile some people are buying, probably because they are betting on prices going above $1,610."
Gold bar premiums in Singapore were steady at 80 cents an ounce above London prices, she added. But a second dealer said premiums fell to as low as 50 cents as a result of selling.
In Hong Kong, market activity remained muted as buyers shied away from higher prices, and premiums were little changed in the range of $1 to $1.50 an ounce.
"There was interest in buying physical material when prices were below $1,570, but once prices rise above $1,590, all interest is gone," said a Hong Kong-based dealer.
In Tokyo, premiums rose to as much as $1 on tight supply as sellers wait for prices to rise further, traders said.
Investors are waiting for the Federal Open Market Commission meeting next week, seeking clues on whether the Fed will launch another round of quantitative easing, and when.
Gold will benefit from more cash printing by central banks, as it floods economies with cheap money and raises the outlook for inflation, driving investors to seek safety in bullion, seen as a good hedge against rising prices.