* Separatist unrest spreads in Ukraine, boosting gold
* U.S. prepared to step up sanctions against Russia
* Palladium above $800/oz on supply sanctions fears
* Coming up: U.S. consumer price index Tuesday (Adds comment, second byline, dateline, updates market activities)
By Frank Tang and Clara Denina
NEW YORK/LONDON, April 14 (Reuters) - Gold rose to a three-week high on Monday as renewed concerns over the escalation of hostilities in Ukraine prompted investors to add positions in bullion as a hedge, while supply fears lifted palladium prices to a fresh 2-1/2 year peak.
Gold’s safe-haven appeal increased on growing violence between pro-Russian separatists and Ukrainian government forces, and news that a Russian fighter aircraft made repeated low-altitude, close-range passes near a U.S. ship in the Black Sea over the weekend.
The yellow metal tracked U.S. equities, rallying in tandem with a higher S&P 500 index, which rebounded on strong earnings from U.S. bank Citigroup Inc after the stock market’s sharp sell-off late last week. Gold typically moves inversely to stocks.
Expectations the Federal Reserve will be cautious in raising interest rates in the future and an uncertain outlook for U.S. equities boosted gold buying, analysts said.
“I think the need to have some gold in investment portfolios for safety now is more than ever,” said Phillip Streible, senior commodities broker at RJ O‘Brien. “A lot of people don’t necessarily trust the stock market at the moment.”
Spot gold was up 0.7 percent at $1,327.10 an ounce by 2:08 p.m. EDT (1808 GMT), having earlier touched its highest since March 24 at $1,330.90.
U.S. COMEX gold futures for June delivery settled up $8.50 at $1,327.60 an ounce. Trading volume was about 50 percent below its 30-day average, preliminary Reuters data showed.
Gold has now posted gains in four out of the last five sessions, after falling below $1,280 an ounce on April 1 to its lowest in nearly two months on signs of easing tensions between Russia and the West over Ukraine.
“The gains are a result of uncertainty over the situation in Ukraine, and warnings by NATO that Russia may invade Ukraine,” Peter Fertig, a consultant at Quantitative Commodity Research, said. “There is a general risk in this conflict that things might get hotter.”
Gold has built up support over the past week after the U.S. Federal Reserve’s March meeting minutes showed officials were not keen on increasing interest rates straight after unwinding bond purchases, as the markets had feared.
Palladium was up 1.2 percent at $809.75 an ounce for its fifth session of gains.
The autocatalyst metal hit its highest since August 2011 at $816.10 an ounce on growing fears supply would suffer from fresh U.S. sanctions on top producer Russia, as well as prolonged labor strikes in No. 2 miner South Africa.
Palladium has outperformed other precious metals this year, rising 14 percent. It has also been supported by supply concerns, growing demand in the auto sector and buying from two newly-launched exchange-traded funds in Johannesburg.
Among other precious metals, platinum gained 0.7 percent to $1,460.40, having earlier hit its highest in nearly a month at $1,469.90 as labor strikes continued in South Africa. Silver inched up 1 cent at $19.96 an ounce.
2:08 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL US Gold JUN 1327.50 8.50 0.6 1318.70 1331.40 91,128 US Silver MAY 20.010 0.064 0.3 19.720 20.140 33,298 US Plat JUL 1467.40 4.80 0.3 1459.50 1471.50 5,302 US Pall JUN 811.50 4.70 0.6 807.10 817.00 5,435 Gold 1327.10 9.13 0.7 1319.60 1330.90 Silver 19.960 0.010 0.1 19.760 20.130 Platinum 1460.40 10.30 0.7 1462.40 1469.90 Palladium 809.75 9.35 1.2 809.90 816.10 TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 95,149 191,170 177,875 15.83 0.39 US Silver 41,151 49,693 58,736 22.81 0.42 US Platinum 5,381 15,091 12,347 18.04 0.70 US Palladium 5,829 5,550 5,849 27.79 -0.15 (Additional reporting by Jan Harvey in London, A. Ananthalakshmi in Singapore; editing by Keiron Henderson, Anthony Barker, David Evans and Meredith Mazzilli)