By Clara Denina
LONDON (Reuters) - Gold rose 1.2 percent on Tuesday after the dollar fell to a seven-week low as traders reined in U.S. interest rate rise bets following dovish comments from a Federal Reserve policymaker.
Spot gold rose to a session high of $1,355.10 an ounce and was up 1.1 percent at $1,353.55 by 1211 GMT.
U.S. gold rose 0.9 percent to $1,359.40 an ounce.
Spot gold was within reach of the more than two-year high of $1,374.91 hit last month as investors sought refuge from volatility across financial markets following Britain's vote to leave the European Union.
Most of the metal's gains were attributed to a weak dollar, which fell 1 percent against a basket of main currencies. A lower dollar makes gold cheaper for foreign-currency holders.
The trigger for its weakness and, in turn, gold's strength was a paper from San Francisco Fed President John Williams arguing that central banks might have to raise inflation targets, focus more on growth and back much looser fiscal policy in future.
Markets will monitor U.S. data later in the day including consumer prices, housing starts and industrial output for another chance to gauge the health of the economy.
High on the U.S. calendar this week are also the minutes of the last Federal Reserve meeting.
"The Fed should reiterate their data dependency, that in the uncertainty they would want to see inflation and wage targets ... given that the data has been lukewarm, apart from the July jobs data, December now seems the only opportunity for this year," Societe Generale analyst Robin Bhar said.
"If the market believes that, then gold is going to stay underpinned for the whole period," he said.
The metal was also helped by lower European shares, which pulled back from seven-week highs.
Soros Fund Management LLC cut its shares in gold sharply in the second quarter, while New York-based Paulson & Co, led by John Paulson, kept its stake in SPDR Gold Trust unchanged, U.S. Securities and Exchange Commission filings showed on Monday.
Silver was up 1.3 percent at $20.08 an ounce.
Platinum, which hit a near three-week low of $1,105.50 earlier in the session, rebounded 2.3 percent to $1,132.50.
Palladium was up 1.1 percent at $700.80. It hit a three-week low of $679.72 on Monday.
(Additional reporting by Nallur Sethuraman in Bengaluru; editing by Susan Thomas and David Clarke)
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