By Sumita Layek
(Reuters) - Gold prices rose on Thursday as the dollar fell on weak economic data from the United States, which bolstered expectations the Federal Reserve would stick to its dovish stance on monetary policy.
Spot gold rose 0.4 percent to $1,311.88 per ounce as of 12:38 p.m. EST (1738 GMT). U.S. gold futures were down 0.1 percent at $1,314.3.
The dollar index fell to a session low, weighed down by a string of disappointing U.S. data, with retail sales recording their biggest drop in nine years in December and weekly jobless claims registering an increase.
The dollar's slide soon after the data, which compounded worries of an economic slowdown, helped bullion shake off limited headwinds from earlier in the session and turn positive.
The weak data "will continue to keep the Fed on hold. That is helpful for gold," said George Gero, managing director at RBC Wealth Management, adding that some short-covering by investors was also playing a part in gold's gains.
"We had a setback (earlier in the session) and the buyers have stepped in."
Gold prices have risen more than 12 percent since touching more than 1-1/2-year lows in mid-August, mostly on expectations of a pause in interest rate hikes. Lower interest rates reduce the opportunity cost of holding non-interest bearing gold and weigh on the dollar.
Meanwhile, investors continued to keep a close eye on news surrounding the U.S.-China trade dispute amid growing optimism for a breakthrough after U.S. President Donald Trump said on Wednesday the talks were "going along very well".
Also on investors' radar was a deadlock in Washington over funding for a border wall with Mexico, with the U.S. Congress trying to avoid a partial government shutdown.
"We are not going to have a huge movement in gold until we find what is going on with the potential shutdown in the U.S. and also the meeting with China," said Afshin Nabavi, senior vice president at MKS SA.
With gold unable to record a significant break above its recent steady range, the world's largest gold-backed ETF, SPDR Gold Trust, had increased outflows, with holdings down more than 3 percent so far this month.
Gold is range-bound between $1,300 and $1,325 and weakness in the U.S. dollar, and clarity on Sino-U.S. trade talks would drive it above $1,325 and potentially toward $1,350, said ABN AMRO analyst Georgette Boele.
Palladium rose 0.7 percent to $1,405 per ounce. Platinum was down 0.3 percent at $781 per ounce, while silver rose 0.2 percent to $15.59.
(Reporting by Sumita Layek and K. Sathya Narayanan in Bengaluru; editing by Dan Grebler and Jonathan Oatis)
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