PRECIOUS-Gold edges up on steady demand; Fed rate hike speculation weighs

* Spot gold seen in the $1,261-$1,273 - technicals
    * Silver off over 2-week highs hit Monday

 (Updates prices)
    By Apeksha Nair
    Oct 25 (Reuters) - Gold prices edged up on Tuesday,
underpinned by healthy demand, but an increasing probability of
a U.S. interest rate hike and a firm U.S. dollar kept prices
    Spot gold was up 0.2 percent at $1,267.07 an ounce at
0645 GMT, while U.S. gold futures were up 0.3 percent at
$1,267.5 an ounce. 
    Chicago Fed President, Charles Evans, said on Monday the
U.S. central bank will raise policy rate three more times by the
end of next year, if inflation expectations and the labor market
continues to improve. 
    The Markit survey of U.S. manufacturing climbed to a
one-year top of 53.2, while business activity in Europe expanded
at the fastest pace this year so far in October. 
    However, the underlying demand is strong for the metal, said
ANZ analyst Daniel Hynes.
    "The broad backdrop for gold is still quite positive, with
rising inflation expectations, quantitative easing in Europe and
Japan, negative yields, sovereign bonds," Hynes said.
    "But certainly impetus for another round of kick higher is
lacking at the moment," he added.
    The dollar index, which measures the greenback
against a basket of currencies, was steady at 98.74, after
hitting a nine-month high on Monday. 
    "The possibility of a December rate rise is gold bearish
near term but if policy rates remain low for some time, the gold
market should be well supported in the medium to longer term,"
said James Steel, an analyst at HSBC.
    The metal is highly sensitive to rising U.S. interest rates,
which can lift the opportunity cost of holding
non-interest-bearing gold.
    "We expect the gold price to test resistance at $1,269.30
(200-day moving average) again this week before the next
resistance level at 1,274 $/oz comes into reach," Heraeus Metal
Management said in a note.
    Spot gold looks neutral in a range of $1,261-$1,273 per
ounce, and only an escape could suggest a direction, Reuters
technical analyst Wang Tao said. 
    Silver was up 0.6 percent at $17.66 an ounce. It
touched an over 2-week high of $17.88 in the previous session.
    Platinum was up about 1.2 percent at $947.20 an
ounce, while palladium was up 1.07 percent at $637.50.

 (Reporting by Apeksha Nair in Bengaluru; Editing by Richard
Pullin and Amrutha Gayathri)