Gold held close to the previous session's near three-week high in Europe on Wednesday, supported by an increased focus on inflation after China's second interest rate hike in six weeks.

Spot gold was bid at $1,363.24 an ounce at 1221 GMT, against $1,363.59 late in New York on Tuesday. U.S. gold futures for April delivery eased 10 cents to $1,364.00 an ounce.

A change in sentiment toward the precious metal on Tuesday after it held its ground following China's rate hike prompted a scramble among speculative investors to cover short positions, lifting prices more than 1 percent.

Perhaps there was more strength to the market than some people had feared, Mitsubishi analyst Matthew Turner said.

But it will be hard to see further gains unless we get some really obvious evidence -- maybe, if China's inflation data on Tuesday is higher than expected, he added.

The hike brought inflation expectations in China into focus. Analysts polled by Reuters expect inflation to have picked up to 5.3 percent last month, the fastest pace in more than two years, on the back of soaring food prices.

On the wider markets, the euro fell against the dollar after sources said Bundesbank head Axel Weber will not be a candidate to replace Jean-Claude Trichet as President of the European Central Bank. European shares edged lower. .EU

U.S. oil prices rose after four consecutive sessions of losses, while Brent crude rose more than half a percent to above $100 a barrel due to tighter North Sea supplies. Base metals prices eased.

MARKETS AWAIT BERNANKE

Financial markets' attention will be focused on Federal Reserve Chairman Ben Bernanke's testimony to the House Budget Committee at 1500 GMT, where traders will look for clues as to the outlook for monetary policy.

The messaging from Fed speakers so far this week has held close to market expectations, said UBS in a note. Today Fed Chairman Bernanke testifies to Congress, and if he retains his dovish undertones of last week this may assist gold.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, dipped to 1,228.56 tons on Tuesday from 1,228.864 tons the previous day, although the hefty outflows seen in January have apparently been staunched.

The SPDR fund saw its second-biggest monthly outflow and the main silver ETF, the iShares Silver Trust, its biggest ever outflow last month, adding downward momentum to precious metal prices.

Silver was bid at $30.23 an ounce against $30.31, after reaching its highest price since January 4 on Tuesday at $30.35 an ounce.

The gold:silver ratio -- the number of silver ounces needed to buy an ounce of gold -- recovered from the near five-year low below 45 it reached on Tuesday to just above that level.

Platinum and palladium rose back to multi-year highs on Wednesday at $1,865 and $836.75 an ounce respectively, boosted by firmer gold prices, a softer dollar, and expectations that demand from carmakers for the autocatalyst metals will improve.

Analysts also suspect platinum output from South Africa, which produces four-fifths of world supply of the metal, and palladium exports from Russia could be constrained this year.

Supply side fundamentals and the economic recovery support a slightly brighter future outlook, said VTB Capital in a note.

Platinum was later at $1,860.49 an ounce against $1,855.24, while palladium was at $832.97 versus $835.72.

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