PRECIOUS-Gold rises on weak dollar, set for third week of gains

* Gold rebounds from largest one-day fall in three weeks
    * Silver rises after biggest drop in a month

 (Updates prices; adds comment, second byline, NEW YORK
    By Marcy Nicholson and Clara Denina 
    NEW YORK/LONDON, June 17 (Reuters) - Gold rose more than 1
percent on Friday, supported by a softer dollar and cautious
interest rate comments by a voting U.S. Federal Reserve policy
member, and was headed for a third week of gains.
    The U.S. dollar made its biggest drop against a
basket of major currencies in two weeks, making
dollar-denominated assets such as gold cheaper for holders of
other currencies. 
    Spot gold was up 1.2 percent at $1,293.80 an ounce at
3:02 p.m. EDT (1902 GMT). Bullion has risen 1.5 percent so far
this week.
    U.S. gold for August delivery settled down 0.3
percent at $1,294.80 an ounce, well below Thursday's peak of
$1,315.55, the highest since August 2014.
    "Gold is reverting to its safe-haven role, in a situation
where euro zone government bonds are in negative yield territory
and investors have fewer safe assets to choose from," Mitsubishi
Corp strategist Jonathan Butler said.
    St. Louis Fed President James Bullard said the central
bank's "dot plot" of projected interest rate policy "appears to
be too steep."
    "Fed funds futures markets do not seem to believe it. They
are priced for a much shallower pace of increases," Bullard
said, arguing that the central bank may need to only increase
rates once between now and the end of 2018. 
    Gold is highly sensitive to rising interest rates, which
lift the opportunity cost of holding the precious metal.
    "His comments were clearly bullish," said Bill O'Neill,
co-founder of commodities investment firm Logic Advisors.
    "A July rate hike is virtually out of the question. I think
gold is looking at that."
    Traders said that market dealings could be volatile next
week ahead of the June 23 referendum when Britain will vote on
whether to remain in the European Union or to leave. 
    The Bank of England escalated its warnings about fallout
from the vote, saying it could harm the global economy and that
sterling looked increasingly likely to weaken further if "Leave"
    "Over the next week until the British referendum, there
could be a further upward move in gold ... as investors will use
it as a hedge against various financial risks," Commerzbank
analyst Daniel Briesemann said.
    Reflecting renewed optimism towards gold, holdings in SPDR
Gold Trust, the world's largest gold-backed
exchange-traded fund, rose to 902.53 tonnes on Thursday, the
highest since October 2013.   
    Silver rose 1.8 percent to $17.44 an ounce after
falling 2 percent on Thursday. 
    Platinum rose 0.3 percent to $967.50 and palladium
 fell 0.3 percent to reach $529.75. 

 (Additional reporting by Vijaykumar Vedala in Bengaluru;
Editing by Meredith Mazzilli)