PRECIOUS-Gold rises on higher demand, Fed rate hike prospects weigh

* Gold range-bound on U.S. Fed rate-hike bets
    * Silver off over 2-week highs hit Monday
    * GRAPHIC-2016 asset returns:

 (Updates prices)
    By Zandi Shabalala
    Oct 25 (Reuters) - Gold rose on Tuesday due to rising
physical demand from India  but growing expectations of a U.S.
interest rate hike kept a lid on prices.
    The metal is highly sensitive to rising U.S. rates, which
lift the opportunity cost of holding non-yielding assets while
boosting the dollar.
    Spot gold was up 0.4 percent at $1,268.68 an ounce at
1220 GMT. It has traded in a narrow $6.60 per ounce range for
the past five sessions.
    Analysts say demand from India is expected to remain
elevated as festivals, including Dhanteras and Diwali, will be
celebrated at the end of the month - two of the most important
Hindu festivals and a time when gold is traditionally given as a
   "Gold has been clearly supported by physical buying in the
Indian market especially and gold prices are at a slight premium
there," said Societe Generale's head of metals research, Robin
    He said higher premiums were an indication of physical
    U.S. gold futures were up 0.4 percent at $1,267 an
    At the same time, markets seemed cautious, trading gold in
narrow ranges, as hawkish statements from a U.S. Federal Reserve
official and upbeat economic data were seen raising the
likelihood of a rate hike later this year.
    Chicago Fed President, Charles Evans, said on Monday the
U.S. central bank will raise its policy rate three more times by
the end of next year, if inflation expectations and the labour
market continue to improve. 
    A Markit survey of U.S. manufacturing climbed to a one-year
top of 53.2, while business activity in Europe expanded in
October at the fastest pace this year so far. 
    "We need to monitor economic data ahead of the Fed's
decision because it's an ongoing battle between the hawks and
the doves right now and also how to interpret the data," Danske
Bank senior analyst Jens Pedersen said.
    In technicals, support for gold appears to be between $1,250
and $1,260, which restricts downside moves, MKS Pamp said in a
    "With the market pricing in a 70 percent chance of a U.S.
rate rise this December it is difficult to see the yellow metal
pulling too far away from these levels over the short term," the
precious metals trader added.    
    Silver was up 0.6 percent at $17.67 an ounce. It
touched a more than two-week high of $17.88 in the previous
    Platinum was up about 2 percent at $959.40 an ounce
after hitting a two-week high of $963.60, while palladium 
was up 0.9 percent at $636.47.

 (Additional Reporting by Apeksha Nair in Bengaluru; editing by
Jason Neely/Ruth Pitchford)