* Gold traders sidelined by impasse in US fiscal talks
* Indian buyers pick up physical gold at bargain
* Palladium outperforms, Chinese data lends support (Recasts, updates prices to close of US futures session, adds market details)
By Barani Krishnan
NEW YORK, Dec 13 Gold held below $1,700 an ounce on Friday, finishing steady on the day but down for a third week, hampered by thin holiday season trading and uncertainties over stalled U.S. budget negotiations.
Silver finished the day and week down. Palladium outperformed on both counts after data showing strong manufacturing growth in China, a major market for palladium used in cleansing auto emissions.
With only about two weeks left in the year, gold traders seemed disinclined to put on big positions, analysts said.
The so-called "fiscal crisis" hanging over the U.S. economy was also hampering any meaningful moves in bullion prices, they said.
"It's been a rather uninspiring day for gold. I think a lot of money is sidelined until the end of the year," said James Steel, analyst at HSBC in New York.
By 3:00 p.m. EST (2000 GMT), the spot price of bullion was at $1,696.11 an ounce, barely changed from late Wednesday's $1,696.69 level.
Compared with the previous Friday's finish of $1,704.04, it showed a loss of nearly half percent.
U.S. gold futures' most-actively traded contract, February settled at $1,697, versus the previous session's close of $1,696.80.
GOLD SEEN LESS RISK-AVERSE
President Barack Obama and Republican congressional leaders remained deadlocked in talks aimed at reaching a deal before Jan. 1 to prevent steep tax hikes and budget cuts that could push America into a new recession.
An agreement that averts the fiscal cliff should benefit gold, which has traded closely with higher-risk assets, such as stocks, this year.
"Sentiment in gold seems to be changing. Gold seems to be becoming less risk-averse", said Eugen Weinberg, global head of commodities research at Germany's Commerzbank.
Despite the recent bearish mood in gold, the yellow metal is still poised to end the year up almost 16 percent, which would keep its winning streak intact for a 12th straight year.
Much of this year's gains in gold came after a new round of stimulus measures from central banks kicked in in the third quarter.
Even so, Standard Chartered analyst Daniel Smith said bullion seems to have lost the traction it had during run-ups in the first and third quarters.
He said if gold rises again with stocks in the new year, it is likely to underperform.
"My experience is that gold will be a laggard," Smith said.
Illustrating his point, gold took little support from this week's announcement by the U.S. Federal Reserve that the central bank will buy $45 billion of government bonds each month after its "Operation Twist" program expires. Many traders cashed in after a brief price gain, following the Fed announcement.
PALLADIUM UP FOR FIFTH WEEK
In the physical market, Indian gold importers were continuing to stock up for the wedding season, taking advantage of prices pressured down by a stronger rupee.
"People feel this is a good buying opportunity as prices could jump another 1,000 rupees," said Harshad Ajmera, proprietor of bullion merchant JJ Gold House.
In other precious metals, spot palladium was up 1.7 percent at $700.50 an ounce after a session peak at $702.
For the week, palladium rose 1 percent, marking a fifth straight week of gains that have added about $100, or about 17 percent, to prices since around mid-November.
"Palladium... received a boost from China's manufacturing reading," Standard Bank said in a note.
China's vast manufacturing sector grew at its fastest pace in 14 months in December, data showed.
Platinum was up 0.1 percent at $1,612.99 per ounce, and 1 percent higher from the previous week.
Spot silver was down 1 percent at $32.22, after falling to a near one-month low of $32.15. For the week, it fell 2.3 percent, marking a third straight week of losses or the longest slide in nearly seven months. (Additional reporting by David Brough in London and Rujun Shen in Singapore; editing by Peter Galloway)