PRECIOUS-Gold up on bargain hunting, dollar pares gains

* Speculators cut gold, silver longs
    * SPDR Gold holdings rise 0.4 pct on Friday
    * Platinum off over 7-mth lows hit on Friday

 (Updates prices)
    By Sethuraman N R
    Oct 17 (Reuters) - Gold prices rose slightly on Monday as
the U.S. dollar pared gains and bargain hunters used dips to
accumulate the precious metal. 
    Spot gold rose as much as 0.5 percent to $1,256.11,
and was up 0.4 percent at $1,254.60 an ounce at 0729 GMT. The
yellow metal fell nearly 0.6 percent on Friday to a low of
$1,247.01, its lowest since Oct. 7.
    U.S. gold futures were flat at $1,255.60 an ounce.
    "Because the possibility of a December rate hike is
increasing, generally, the trend of gold price is downwards but
in the short term we think that there could be relatively a mild
technical correction," said Jiang Shu, chief analyst at Shandong
Gold Group.
    Shu expects prices to touch $1,270 in the short term before
a sharp selloff on expectations of a rate hike.
    "There's still a period of time before the rate hike."
    U.S. producer prices rose in September to post their biggest
year-on-year rise since December 2014, while retail sales gained
0.6 percent after a 0.2-percent decline in August. 
    Positive economic data from the U.S. usually puts pressure
on gold prices as investors raise bets on an interest rate hike
that would increase the opportunity cost of holding non-yielding
    Fed Chair Janet Yellen gave a broad review of where the U.S.
economic recovery might still fall short. 
    Though not addressing interest rates or immediate policy
concerns directly, Yellen laid out the deepening concern at the
Fed that U.S. economic potential is slipping and aggressive
steps may be needed to rebuild it.
    "Though there is not much activity, the metal (gold) is
finding good interest in small amounts in China at this price,"
a trader with a China-based bank said.
    The dollar index, which measures the greenback
against a basket of currencies, was flat at 98.016 after
touching a high of 98.169.
    Hedge funds and money managers again reduced their net long
positions in COMEX gold and silver contracts in the week to Oct.
11, U.S. Commodity Futures Trading Commission data showed on
    Holdings of SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, rose 0.40 percent to 965.43
tonnes on Friday. 
    Silver was up 0.4 percent at $17.44 a ounce.
    Platinum rose 0.9 percent to $941. It touched an over
7-month low of $923.50 on Friday. Palladium was up 0.6
percent at $648.10, after hitting nearly a three-month low of
$629.22 in the previous session.

 (Reporting by Nallur Sethuraman and Apeksha Nair in Bengaluru;
Editing by Joseph Radford and Sunil Nair)