* Gold up 10.7 pct in Feb, biggest rise since Jan 2012
* Holdings of SPDR gold ETF hit highest since Sept 2014
* Palladium rallies to 2-week high amid strong U.S. car sales
* GRAPHIC-2016 asset returns: reut.rs/1WAiOSC (Rewrites throughout, updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, March 1 (Reuters) - Gold turned lower on Tuesday, as the dollar and global equity markets rose on better-than-expected U.S. data, fueling speculation the Fed will raise U.S. interest rates.
Palladium surged more than 6 percent on strong U.S. auto sales.
Spot gold was down 0.2 percent at $1,235.96 an ounce at 3:12 p.m. EST (2012 GMT), after its biggest monthly gain in four years on safe-haven buying spurred by global economic concerns.
U.S. gold futures for April delivery settled down 0.3 percent at $1,230.80.
Gold prices were higher earlier, buoyed by weak Chinese manufacturing data and comments by New York Federal Reserve President William Dudley, who said he sees downside risks to his U.S. economic outlook. This could flag a longer pause before the Fed’s next interest-rate hike than he and his colleagues had earlier signaled.
“Some U.S. dollar strength (is putting) a headwind into the gold market here, even though you’ve got a lot of speculation now moving to be long gold and (monthly) exchange-traded product flows rising to the second-highest level since February 2009,” said Rob Haworth, senior investment strategist for U.S. Bank Wealth Management in Minneapolis.
The dollar rallied against a basket of major currencies after U.S. manufacturing appeared to stabilize in February, supporting views of higher U.S. interest rates, a source of pressure for gold prices.
U.S. stocks led equity markets around the globe to their highest in a month.
Meanwhile, European Central Bank President Mario Draghi said Euro zone growth and inflation prospects have weakened.
Further inflows into gold-backed exchange-traded funds indicated buoyant investor appetite for gold with the largest, New York-listed SPDR Gold Shares, seeing inflows of nearly 15 tonnes on Monday, taking holdings to their highest since 2014.
“From our perspective, it’s warranted to reconsider gold’s role as insurance in a portfolio,” Julius Baer analyst Carsten Menke said.
Although global economic concerns have prompted investors to channel money into gold, rising prices have muted some physical demand in the major Asian gold-consuming regions.
India, the second-largest consumer, has reintroduced a local sales tax on gold jewelry and jewelers there will go on indefinite strike from Tuesday in protest.
Palladium rallied after underperforming other precious metals last month, with traders noting support from strong U.S. auto sales, which soared to a 15-year high in February.
Spot palladium rose by as much as 6.7 percent to $523 an ounce. Silver was down 0.1 percent at $14.86 an ounce while platinum was up 0.6 percent at $935.74 an ounce.
Additional reporting by A. Ananthalakshmi in Singapore and Manolo Serapio Jr in Manila; Editing by David Evans and Lisa Shumaker