By Zandi Shabalala
ISTANBUL (Reuters) - Gold barely budged on Friday as rising demand from Asia was offset by a strong dollar, but the precious metal was on track for its first weekly rise in three weeks.
Upbeat dollar strength in the last few weeks accounted for a slip in the gold price on a slew of data that indicated an improvement in the U.S. economy that would support a rate increase later this year.
A rise in U.S. rates increases the opportunity cost of holding non-yielding assets such as bullion and creates a flight to investments that may offer higher returns.
Spot gold steadied at $1,265.54 an ounce at 1210 GMT. It was headed for a weekly gain of over 1 percent, clawing back part of the 6.5 percent shed over the last three weeks.
Gold demand from Asia, including China, India and exchange-traded funds (ETF) have propped up prices.
"There is accelerating physical gold demand in Asia and particularly in India which has helped prices," Commerzbank commodity analyst Carsten Fritsch said, adding that Indian demand had improved from lacklustre sales last year.
U.S. gold futures fell 0.2 percent to $1,265.
The dollar index, which measures the greenback against a basket of currencies, was up 0.3 percent at 98.590. It touched a new seven-month high of 98.564 on Friday.
"The dollar is still the most important driver of gold movements," said ABN AMRO commodity strategist Georgette Boele.
Holdings of the SPDR Gold Trust, the world's largest gold-backed ETF, rose 0.31 percent to 970.18 tonnes on Thursday. SPDR holdings have risen 2.3 percent so far this month.
MKS PAMP Group said in a note that ETF inflows continued to support gold. "However, dollar strength is likely to weigh upon moves higher over the short term amid euro and pound weakness".
A slew of data including U.S. home resales and unemployment filings appeared to indicate an improving U.S. economy that would support a rate hike later this year.
Silver fell 0.3 percent to $17.46.
Platinum was down 0.5 percent at $929.40. Palladium fell 0.9 percent to $623.70 after dipping to its lowest point since July 13.
(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Amrutha Gayathri/Mark Heinrich)
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