Gold lacklustre as Credit Suisse-UBS deal spurs risk-on mood

March 20 (Reuters) - Gold prices dropped on Monday, with their safe-haven appeal diminished as risk sentiment improved after Swiss lender UBS sealed a deal to buy peer Credit Suisse in a rescue effort to stabilise global financial markets.

Spot gold was down 0.7% at $1,973.44 per ounce, as of 0404 GMT, after sliding 1% earlier in the session. U.S. gold futures rose 0.3% to $1,978.40.

On Sunday, UBS agreed to buy 167-year-old Credit Suisse for $3.23 billion and assume up to $5.4 billion in losses in a deal backed by a massive Swiss guarantee.

Credit Suisse was caught up in a widening crisis triggered by the collapse of U.S.-based Silicon Valley Bank earlier this month, following which gold rallied over 8% or by $160 on safe-haven demand.

"The race to reassure markets over the recent global financial instabilities continues... with UBS' rescue deal for Credit Suisse aiding to calm some nerves and supporting some unwinding of safe-haven flows in gold," said Yeap Jun Rong, market analyst at IG.

Moves by authorities to avert a global banking crisis lifted market confidence on Monday as investors welcomed the acquisition of Credit Suisse by UBS Group and emergency dollar liquidity from top central banks.

The dollar was up 0.2%, making bullion expensive for overseas buyers.

But "the risk environment is treading on a fragile state, as market participants are still not fully convinced whether recent moves by authorities can backstop further banking fallouts. Therefore, it may take much more for gold to reverse its current bullish trend," IG's Yeap said.

Meanwhile, markets are pricing in a 25 basis point interest rate hike by the U.S. Federal Reserve on Wednesday.

Bullion is considered a hedge against economic uncertainties, although higher rates increase the opportunity cost of holding non-yielding gold.

Spot silver dipped 1.2% to $22.32 per ounce, platinum fell 0.6% to $970.27 and palladium was 0.4% lower at $1,414.10.