PRECIOUS-Gold rallies 1 pct on U.S. fiscal worries
* Gold lifted by U.S. budget, debt ceiling talks
* Dollar index slides to near 7-month low
* Chinese demand weak ahead of week-long holiday (Updates prices)
By Jan Harvey
LONDON, Sept 27 (Reuters) - Gold jumped more than 1 percent on Friday as wrangling over the U.S. budget and jitters over the outlook for Federal Reserve policy stoked buying interest, with buying accelerating sharply on a break of a key chart level.
U.S. gold futures jumped to a high of $1,345.20 an ounce, up 1.6 percent, after breaking through the 100-day moving average at $1,341 an ounce, a level it slid below last Friday when prices crashed 2.9 percent.
"There were some stops above there, and equity futures are weaker because people are concerned about the political situation in the U.S. and the prospect of another fiscal cliff," Simon Weeks, head of precious metals at ScotiaMocatta, said. "That's driving it at the moment."
Spot gold was at $1,337.90 an ounce at 1424 GMT, up 1.1 percent, while U.S. gold futures for December delivery were up $14.30 an ounce at $1,338.40.
Concern over budget and debt negotiations in Washington sent the dollar close to a seven-month low and pressured world equities on Friday.
U.S. House of Representatives Republicans on Thursday refused to accede to President Barack Obama's demand for straightforward bills to run the government beyond Sept. 30 and to lift borrowing authority to avoid a default.
"Support is obviously coming from the U.S., where lawmakers are once again playing Russian roulette with the budget and debt limit," Ole Hansen, head of commodity strategy at Saxo Bank, said.
"At the same time a couple of stronger data points and recent Fed comments do not completely rule out the potential for tapering later this year," he added. "But for now the main focus is on the U.S. Congress."
Federal Reserve official Charles Evans stoked uncertainty over the central bank's plans to reduce its asset purchases on Friday, saying tapering could begin this year or be pushed into 2014, based on economic forecasts.
The prospect of an end to ultra-loose monetary policy, which keeps interest rates low while stoking inflation fears, has knocked prices 20 percent lower this year.
PHYSICAL DEMAND WEAK
Physical demand in China was weak, traders in Hong Kong said, with premiums on the Shanghai Gold Exchange to London spot prices falling to multi-month lows of $7 an ounce this week from about $30 in April-May.
Some gold shipments to China have been postponed by a few weeks as an upcoming holiday curbs demand for the metal, they said. Chinese markets will be closed Oct. 1-7 for the National Day holiday.
Silver was up 0.7 percent at $21.78 an ounce, tracking gold.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, earlier rose to a six-week high at 61.4.
Spot platinum was up 0.8 percent at $1,416.24 an ounce, while spot palladium was up 0.5 percent at $721.84 an ounce.
Platinum took support from a strike over job cuts at Anglo American Platinum's operations in South Africa Amplats, the world's top platinum producer, which said last month it would cut 4,800 jobs. (Additional reporting by A. Ananthalakshmi in Singapore; editing by William Hardy and James Jukwey)