PRECIOUS-Gold climbs above Feb lows, heading for sixth weekly drop

* Bullion rises after report China seized U.S. drone
    * Gold selling may not be exhausted - HSBC analyst
    * SPDR Gold Trust gold holdings down 10 pct since Nov

 (Recasts, updates prices; adds comment, second byline, NEW YORK
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Dec 16 (Reuters) - Gold rose on Friday,
climbing above the prior session's 10-1/2 month low, as the
dollar and U.S. stocks dipped at the end of a volatile week
highlighted by the Federal Reserve's signal that there could be
more rate hikes than previously expected in 2017.
    Spot gold was up 0.6 percent at $1,135.16 an ounce by
2:30 p.m. EST (1930 GMT). The metal hit $1,122.35 on Thursday,
its weakest since Feb. 2 and is down 2 percent so far this week,
leaving it on track for its sixth consecutive weekly loss.
    U.S. gold futures settled up 0.7 percent at
    Gold prices rose to session highs after U.S. officials told
Reuters that a Chinese warship had seized an underwater drone
deployed by a U.S. oceanographic vessel in the South China Sea.
    "It gave gold a little bit of a boost but it was a knee jerk
spike. It looks like both sides are trying to tweak each other,
if you will," said Bill O'Neill, co-founder of LOGIC Advisors.
    "Today's something of a consolidation day across the board."
    The dollar fell from the 14-year high against a
basket of currencies reached on Thursday when markets
repositioned for a more hawkish U.S. central bank. 
    "The rate hike this week from the Fed and the hawkish
outlook for next year leave a fairly negative picture for gold,"
ING commodity strategist Warren Patterson said.
    Higher interest rates next year could propel the U.S.
currency higher, making gold more expensive for non-U.S. firms.
    "The nature of recent gold selling implies fresh shorting as
well as liquidation," HSBC analyst James Steel said in a note.
    "The selling may not yet be exhausted." 
    Highlighting investors' lack of appetite for gold are
physically backed gold exchange traded funds; holdings of the
SPDR Gold Trust, the world's largest gold ETF, are down
more than 10 percent since Nov. 9. 
    Silver gained 0.6 percent at $16.05 an ounce, after
falling more than 5 percent on Thursday.
    Platinum rallied 3.50 percent to $924.80, after
dropping to the lowest since early February in the previous
    Palladium was down 1.5 percent at $689.50 after
falling to a one-month low at $677.25. It is on track to end the
week down more than 5 percent. 
    "We would refrain from buying (platinum or palladium) at
this point in time," Julius Baer analyst Carsten Menke said in a
note. "We have become more cautious on the demand backdrop,
primarily related to autocatalysts and jewelry."

 (Additional reporting by Swati Verma and Nallur Sethuraman in
Bengaluru; Editing by Adrian Croft and Tom Brown)