(Updates prices) * Palladium hits all-time high of $2,048.55/oz * World stock markets steadied after sell-off * Strong U.S. data lifts dollar By Karthika Suresh Namboothiri Jan 7 (Reuters) - Gold prices inched higher on Tuesday, having earlier retreated from the previous session's almost seven-year high as fears of a larger Middle East conflict following the U.S. killing of a top Iranian general eased. Palladium raced to a fresh all-time high earlier in the session, boosted by fears of a scarcity of supply. Spot gold was up 0.4% at $1,571.77 per ounce as of 01:42 p.m. ET (1842 GMT). U.S. gold futures settled 0.3% higher at $1,574.30 per ounce. "Unless there is a continuous acceleration in the aggressive rhetoric ... The risk perceived to oil is going to diminish and probably less reason to buy gold. The market thinks that at this point the conflict may not escalate too much," said Bart Melek, head of commodity strategies at TD Securities. Gold prices soared to $1,582.59 an ounce on Monday, their highest since April 2013. The killing of General Qassem Soleimani last week by the United States spurred a rush in to safety assets and dented risk appetite. Gold benefits during times of political and economic uncertainty. "There is a concern there might be new instability in the Middle East ... There is a contingent of people diversifying their positions and gold has benefited from it," Melek said. A senior Iranian official on Tuesday said Tehran was considering 13 scenarios to avenge the killing, while the U.S. defense secretary denied reports the U.S. military was preparing to withdraw from Iraq. World shares steadied and oil pulled back from multi-month highs as investors looked past the news. Meanwhile, the U.S. dollar rose against six other major currencies, helped by better-than-expected data in the U.S. non-manufacturing sector. "Monday's price action does suggest the gold and silver bulls are a bit tired and need a pause," Kitco Metals senior analyst Jim Wyckoff said in a note. "It appears risk aversion in the global marketplace has at least temporarily subsided following last week's geopolitical shockwave." Elsewhere, in a boost to market sentiment, the United States and China are expected to sign a preliminary deal on Jan. 15 to de-escalate a prolonged trade war that has roiled markets since its conception. Among other precious metals, palladium extended gains, climbing 0.8% to $2,046.37 an ounce, close to its record high of $2,048.55 notched earlier in the session. Silver rose 0.9% to $18.31 an ounce, while platinum gained 0.4% to $966.51. (Reporting by Karthika Suresh Namboothiri in Bengaluru; Editing by Sandra Maler and Steve Orlofsky)
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