LONDON :  Gold rose on Wednesday as physical demand encouraged speculative buying after the previous session's drop, while support also came from weak German economic data which fuelled prospects the European Central Bank (ECB) could cut interest rates.

Investor confidence is still reeling from gold's spectacular falls and outflows from exchange-traded funds show no signs of abating, although demand for gold bars and coins surged after prices plunged to their weakest in more than two years on April 16.

"There has been quite a lot of support coming from the physical demand, which has been extremely strong since the sell-off and I think that will continue in coming sessions, putting a floor to prices around $1,400," said Peter Fertig, consultant at Quantative Commodity Reaserch.

Spot gold rose 1.2 percent to $1,429.26 an ounce by 1413 GMT, after falling for the first time in six sessions on Tuesday. Gold sank a combined $225 on April 12 and 15 in a sell-off that surprised ardent gold investors and bulls.

U.S. gold futures for June delivery were up 1.5 percent to $1,428.90 an ounce.

European shares extended the previous session's gains, after a weak German Ifo business sentiment survey added to expectations the ECB could cut its main refinancing rate, currently at a record low of 0.75 percent, and continue to inject liquidity into the banking system. [ID:nL6N0DB2BV

Accommodative monetary policies favour gold as low interest rates encourage investors to put money into non-interest-bearing assets.

The central bank holds its policy-setting meeting on Thursday, May 2.

"You could argue that gold's rebound today is in line with that seen in other metals and equities due to expectations of more monetary easing (after German Ifo data)," VTB Capital analyst Andrey Kryuchenkov said.

The dollar held just below a near three-week high against the euro, as the European single currency was slightly helped by hopes Italy can resolve its political gridlock.

The U.S. currency was lower against the yen, while U.S. shares were little changed after data showed orders for long-lasting U.S. manufactured goods recorded their biggest drop in seven months in March and a gauge of planned business spending rose modestly, adding to signs of a slowdown in factory activity.

Cash gold has dropped about 15 percent this year.