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PRECIOUS-Gold rises but U.S. rate expectations cap gains

   * Silver hits two-week high above $17/oz
    * Platinum touches highest in nearly two weeks
    * Dollar falls for third day running

 (Updates prices)
    By Maytaal Angel
    LONDON, Oct 10 (Reuters) - Gold touched its highest in
nearly two weeks on Tuesday, supported by a softer dollar and
geopolitical tensions in Spain and North Korea, though gains
were capped by expectations of another U.S. interest rate
increase.
    Investors were particularly wary on Tuesday as Pyongyang
celebrated the founding of its ruling party, a day after Russia
and China both called for restraint on North Korea following a
Twitter post from U.S. President Donald Trump hinting that
military action was on his mind.             
    In Spain, Catalonia's secessionist leader Carles Puigdemont
is due to address the region's parliament in Barcelona around
1600 GMT and could ask the assembly to vote on a unilateral
declaration of independence from Madrid.             
    The dollar index        ran into some profit-taking but was
still in reach of a 10-week high scaled on Friday when
surprisingly strong U.S. jobs data enhanced already high
expectations that the Fed would raise rates in December.       
    "The Fed is going to raise rates, so we see gold breaking
out of the (current) range down to the $1,250 level, with
geopolitical tensions supporting the downside," said Societe
Generale analyst Robin Bhar.
    Spot gold        was up 0.7 percent at $1,292.40 an ounce by
1425 GMT, having touched its highest since late September at
$1,293.40.
    U.S. gold futures         for December delivery climbed 0.8
percent to $1,295.10. 
    Fed funds futures showed traders were pricing in a nearly 90
percent chance of a December rate increase.
    Gold is highly sensitive to rising interest rates, which
increase the opportunity cost of holding non-yielding bullion.
Higher rates also tend to boost the U.S. currency, making
dollar-priced gold costlier for non-U.S. investors.
    In the wider markets, global shares ground out a record high
on Tuesday, capping gains in safe-haven gold.                
    "We still reiterate our view ... that the precious metal
will likely remain under pressure over the short term, as we see
a firmer dollar, resilient equity markets, rising interest rates
and slightly quieter geopolitical conditions all combining to
keep serious rallies in check," INTL FCStone said in a note.
    In other precious metals, silver        rose 1.5 percent to
$17.19 an ounce, having touched a two-week high of $17.20.
    "The gold-silver ratio is trading above the 10-year average,
suggesting silver is undervalued," Standard Chartered said in a
note.
    "Silver's supply and demand dynamics are supportive of
higher prices in light of stagnating mine output and firming
industrial demand. India's silver imports are up almost 60
percent for the year to August while China's are up 45 percent."
    Platinum        was up 2 percent at $929.80 an ounce, having
hit its highest in nearly two weeks, while palladium        rose
0.5 percent to $934.25.

 (Additional reporting by Apeksha Nair in BENGALURU; Editing by
Louise Heavens and David Evans)

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