* Markets watch U.S. debt ceiling
* Gold importers in India pause on fresh purchases
* China data shows economic recovery gains pace
By David Brough
LONDON, Nov 9 (Reuters) - Gold erased gains to a three-week high as the dollar strengthened on Friday, and was buoyed by expectations U.S. monetary policy would remain loose after President Barack Obama's re-election and by looming fiscal woes.
Since the U.S. elections on Tuesday investors have become worried that Washington's politicians may struggle to find a compromise to cut the budget deficit before nearly $600 billion worth of spending cuts and tax increases start early in 2013.
Markets are also watching the debt ceiling, which needs to be raised to avoid a government shutdown.
Spot gold was at $1,727.51 an ounce by 1308 GMT, down 0.14 percent, having turned negative as the dollar strenthened after earlier touching a three-week peak of $1,737.60, while U.S. gold edged up 0.12 percent to $1,728.10.
The stronger dollar made the yellow metal more costly in other currencies.
The dollar index rose a two-month high as the euro extended losses on Friday with the U.S. currency also bolstered by safe-haven inflows as riskier assets like stocks took a knock.
Gold prices hit a 2-1/2 week high on Wednesday after Obama's re-election gave markets a boost by ending weeks of political uncertainty, and since extended gains to the three-week peak as concerns over the fiscal cliff intensified.
"Wrangling (between Obama and Congress) between now and the end of the year might underpin gold," William Adams, head of research at Fastmarkets.com, said.
Nic Brown, head of commodities research at Natixis, said the Obama victory signalled a continuing environment of relaxed monetary policy, which was likely to support gold prices.
"An Obama victory enhances the likely longevity of ongoing quantitative easing," he said.
Standard Bank said in a market note, "In spite of dollar strength, the market appears to continue to take comfort from Obama's re-election and the implied support this gives to continued monetary accommodation from the Fed."
Money printing by central banks boosts gold's appeal as it keeps interest rates at a low level, reducing the opportunity cost of holding a metal that has no yield outside its actual value.
Spot gold XAU= is likely to gain more to $1,749 per ounce, driven by an upward wave c, according to Reuters market analyst Wang Tao.
China's economy strode further along the road of recovery from its slowest growth in three years, data for October showed on Friday, as infrastructure investment accelerated and output from the country's factories ran at its fastest in five months.
China's gold demand is expected to grow 1 percent this year to a record of around 860 tonnes, Philip Klapwijk, the global head of metals at consultancy Thomson Reuters GFMS, said this week, with both jewellery and investment sales rising.
Adams said, "If we start to see more economic momentum in China, that wouild only be good for consumer buying of jewellery. People wouild have more money to invest in gold."
Gold importers in India, the world's biggest buyer of bullion, paused on fresh purchases ahead of festivals next week, as a weaker rupee helped the yellow metal hit its highest level in seven weeks.
The festive season in India will peak with Dhanteras and Diwali, while the wedding season continues until December.
Spot platinum XPT= traded up 0.76 percent to $1,552.49 an ounce. Spot palladium XPD= was down 0.47 percent at $609.10 an ounce.
Silver fell 0.65 percent to $32.11 an ounce.