By Devika Krishna Kumar and Clara Denina
NEW YORK/LONDON (Reuters) - Gold prices rose on Tuesday, reversing earlier losses after a weaker dollar and falling stock markets spurred safe-haven buying of the precious metal.
Spot gold was trading 0.4 percent higher at $1,278.7 per ounce at 11:17 a.m. EDT (1517 GMT), while U.S. gold futures were also up 0.55 percent at $1,281.20.
Profit-taking led to a drop in gold prices earlier in the session, as stock markets temporarily edged higher.
European shares hit a two-week high, bolstered by a rally in mining stocks, but eased later in the session. The dollar slipped to trade 0.2 percent lower against a basket of six major currencies, giving a boost to gold.
A weaker U.S. currency makes dollar-denominated gold cheaper for holders of other currencies.
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The U.S. government reported earlier on Tuesday that consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year.
Other U.S. data on Tuesday showed housing starts and industrial production rebounded strongly last month, suggesting the economy was regaining steam early in the second quarter.
Long-dated yields fell, with the 10-year note reversing earlier gains and the 30-year bond falling to session lows after the data. Gold, which pays no interest, also rose after strength in the benchmark 10-year U.S. Treasury yield waned.
"Everyone is really waiting to see whether the U.S. economy does pick up in Q2, as it often does, and the narrative over the Fed shifts again," Macquarie analyst Matthew Turner said.
Gold has rallied 20 percent this year on speculation the Fed has slowed its expected pace of rate increases on concerns about the volatility of global markets.
The U.S. central bank should consider raising rates at its June meeting, Richmond Fed President Jeffrey Lacker told the Washington Post in an interview published on Monday, saying inflation was moving towards the Fed's 2 percent target and labour markets had tightened.
SOROS RETURNS
U.S. regulatory filings on Monday showed some influential investors, including billionaire financier George Soros, bought into gold through exchange-traded funds in the first quarter.
Soros, who once called gold "the ultimate bubble", returned to the world's biggest gold exchanged-traded fund (ETF) after a three-year absence, buying 1.05 million shares in SPDR Gold Trust for about $123.5 million.
SPDR Gold Trust's assets have been rising steadily this year and are at their highest level since November 2013.
But long-time gold bull John Paulson cut his bets on bullion.
Spot silver was up 0.93 percent at $17.29 per ounce, spot platinum was up 1.2 percent at $1,057.60 per ounce and spot palladium lost 0.8 percent to touch $584.80 an ounce.
The platinum/palladium ratio has reached its highest point in about a month this week, as it resumes a slow climb higher after reaching its lowest level since 2002 in October.
An ounce of platinum now buys 1.78 ounces of palladium, up from 1.64 ounces at the start of the year.
(Additional reporting by Koustav Samanta and Vijaykumar Vedala in Bengaluru and Jan Harvey in London; Editing by David Clarke and Paul Simao)