PRECIOUS-Gold drops as trade, emerging market worries lift dollar

* Markets await possible new U.S. tariffs on China this week

* Silver hits 2-1/2 year low (Updates prices, headline; adds comment, second byline, NEW YORK to dateline)

NEW YORK/LONDON, Sept 4 (Reuters) - Gold slipped on Tuesday as concerns over an escalating trade war between the United States and China battered emerging market currencies and prompted investors to seek perceived safety in the dollar.

A stronger greenback makes dollar-priced gold costlier for non-U.S. investors.

The U.S. dollar index rallied as the public comment period on a U.S. proposal for new tariffs on Chinese goods is set to end on Thursday, after which Washington can follow through on plans to impose tariffs on $200 billion more of Chinese imports.

Emerging market currencies such as the Argentine peso, Turkish lira, South African rand, Brazilian real, Indonesian rupiah and Indian rupee sank as investors fear these export-oriented economies will be caught in the escalating trade war.

The dollar’s status as the chief reserve currency makes it the primary beneficiary of trade conflicts.

“As long as the dollar focus remains strong, upside potential seems limited (for gold),” said Saxo Bank’s head of commodity strategy Ole Hansen.

He added, however: “I don’t really see a new low in gold (either). The Chinese yuan has been major driver for weakness (in gold) and it has stabilized over the past couple of weeks after the central bank signaled they’re prepared to stabilize it.”

Spot gold lost 0.6 percent at $1,193.78 an ounce by 1:33 p.m. EDT (1733 GMT), earlier sinking to $1,189.20, a 2-1/2-week low. U.S. gold futures for December delivery fell $7.50, or 0.6 percent, at $1,199.20 per ounce.

Silver hit a 2-1/2 year low of $13.97 an ounce, later partly recovering to trade 2.2 percent down at $14.14.

“We’re trying to carve out the bottom here. There’s a lot of short exposure,” said Ryan McKay, commodities strategist at TD Securities.

Gold has lost about 8 percent this year amid rising U.S. interest rates, trade disputes and the Turkish currency crisis, with investors parking their money in the dollar.

“Gold and silver should bottom out at the current level as they should attract physical buying amid ongoing festival season in India. Dull economic activities may result in some safe haven buying in China,” said Vandana Bharti, assistant vice president of commodity research at SMC Comtrade Ltd.

Gold could find support around $1,180 per ounce, McKay added.

Platinum was down 1.40 percent at $772.50 per ounce, earlier hitting $761.80, its lowest since Aug. 16. Palladium was down 0.2 percent at $980.05 per ounce, earlier hitting a nearly 3-month high of $988.47. (Additional reporting by Nallur Sethuraman in Bengaluru; Editing by David Evans and Rosalba O’Brien)