PRECIOUS-Gold pares gains as Fed stirs doubt over rate hike timing

* Fed's Yellen says case for hiking U.S. rates strengthened
    * Platinum falls to 7-1/2-week low
    * Asian gold discounts fall as lower prices lift demand
    * GRAPHIC-2016 asset returns:

 (Recasts, updates prices; adds comment, second byline, NEW YORK
    By Marcy Nicholson and Jan Harvey
    NEW YORK/LONDON, Aug 26 (Reuters) - Gold pared gains on
Friday, while the dollar turned up and U.S. stocks fell, as
investors struggled to decipher the timing of a U.S. interest
rate increase following comments by Federal Reserve Chair Janet
Yellen and other officials. 
    In her much-awaited speech, Yellen said the case for raising
U.S. interest rates has strengthened, although increases should
be gradual.  
    Spot gold rallied 1.5 percent to $1,341.60 an ounce and the
U.S. dollar index fell 0.6 percent after Yellen spoke,
but bullion later gave back all its gains and the greenback
rallied 0.7 percent after Fed Vice Chair Stanley Fischer
suggested that rate hikes were on track for this year.
    "Fischer's hawkish interpretation of Chair Yellen's comments
has hamstrung the gold bull with bullion sliding back close to
day's lows," said Tai Wong, director of base and precious metals
trading for BMO Capital Markets in New York.
    "It's likely now that gold remains unsettled through the
September Employment report."
    Spot gold was up 0.02 percent at $1,321.52 an ounce
by 3:00 p.m. EDT (1900 GMT). It was on track to finish the week
down 1.5 percent after two straight weeks higher.
    U.S. gold futures for December delivery settled up
0.1 percent at $1,325.90.
    Yellen pointed to improvements in the U.S. labor market and
expectations for moderate economic growth, reinforcing the view
that such a move could come later this year. She did not,
however, lay out a clear roadmap for what the Fed needs to see
to raise rates. 
    Gold is highly sensitive to rising U.S. interest rates,
which increase the opportunity cost of holding non-yielding
bullion, while boosting the dollar, in which it is priced.
    "Yellen's highly anticipated remarks at Jackson Hole had a
hawkish tilt ... although with the usual caveats that the timing
will be based on how the data unfold," said Avery Shenfeld,
chief economist for CIBC Capital Markets.   
    Gold discounts in India hit near three-month lows this week,
while buying gathered steam elsewhere in Asia as lower prices
and festive buying lifted demand for the metal. 
    Silver was up 0.6 percent at $18.60 an ounce, after
hitting an eight-week low of $18.46 on Thursday.
    Platinum was down 0.01 percent at $1,068.40, after
falling to a 7-1/2-week low of $1,057. Palladium was 0.1
percent lower at $683.30.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by Susan Thomas and Tom Brown)