PRECIOUS-Gold at 3-wk high as dollar struggles amid US rate outlook

* Dollar index near lowest since August
    * Gold dips slightly after hitting 3-wk top on profit-taking
    * But $1,250 level to be supported -trader

 (Updates prices)
    By A. Ananthalakshmi
    SINGAPORE, April 12 (Reuters) - Gold jumped to a three-week
peak on Tuesday on expectations the Federal Reserve would not
raise U.S. interest rates soon and as the dollar traded close to
its lowest in nearly eight months, though profit-taking chipped
away at some recent gains. 
    The U.S. currency has been on the back foot since Fed Chair
Janet Yellen last month doused expectations for hikes in U.S.
interest rates anytime soon, making dollar-priced commodities
    Lower rates underpin demand for non-interest-yielding
bullion, while hurting the dollar.   
    Spot gold rose to $1,259.66 an ounce early on
Tuesday, its highest since March 18. However, it pared gains to
trade down 0.2 percent at $1,255.40 an ounce by 0636 GMT, on
profit-taking following a 1.4-percent overnight gain. 
    U.S. gold futures climbed to a three-week top of
    "While policy uncertainty is supportive of gold, it is the
currency markets that we look to, to wield the biggest influence
on bullion," HSBC said in a note.
    The dollar remained on the defensive on Tuesday after
slumping overnight to its lowest since August against a basket
of major currencies and a 17-month low against the Japanese yen.
    The dollar index has shed nearly 3 percent after recent
dovish comments by Yellen. 
    Scaled-back expectations for further monetary tightening
this year helped gold to its best quarter in nearly 30 years in
the three months to March, after the U.S. central bank raised
rates in December for the first time in nearly a decade.
    Gold has also been buoyed by some safe-haven demand. Weak
economic data and uncertainty over U.S. monetary policy has
contributed to risk aversion, boosting investor appetite for
bullion and other assets perceived as safer stores of value,
including the Japanese yen.
    In the near term, gold's rally could be capped following
recent sharp gains.
    "We expect profit-taking in gold at these levels with $1,250
to be supported," said MKS Group trader Jason Cerisola.
    Some selling was seen in other precious metals as well on
    Silver dipped 0.1 percent after rallying nearly 4
percent on Monday in its biggest single-day jump in six months. 
    Platinum eased as much 0.6 percent following a
2-percent jump overnight before steadying at $989.45 an ounce.
Palladium rose 1.3 percent to $552.05.
    PRICES AT 0637 GMT          
 Metal            Last      Change   Pct chg
 Spot gold          1255.4    -2.15    -0.17
 Spot silver         15.88    -0.02    -0.13
 Spot platinum      989.45     1.45     0.15
 Spot palladium     552.05     7.05     1.29
 Comex gold         1257.6     -0.4    -0.03
 Comex silver       15.915   -0.061    -0.38
 COMEX gold and silver contracts show the
 most active months
 (Reporting by A. Ananthalakshmi; Editing by Joseph Radford and
Sunil Nair)