PRECIOUS-Gold gains as dollar, yields ease despite Fed's 'taper' talk

* Dollar, U.S. yields lower as Fed-fueled bounce fades

* Inflation expectations work in favor of metals -analyst (Updates prices)

May 20 (Reuters) - Gold hovered on Thursday close to a more than four-month peak it scaled in the previous session, fueled by a dip in the dollar and U.S. yields as investors shrugged off the Federal Reserve’s hints on possible tapering of economic support measures.

Spot gold rose 0.6% to $1,880.22 per ounce by 1:43 p.m. EDT (1743 GMT). U.S. gold futures settled little changed at $1,881.90.

Fed minutes showed “a number” of officials thought that if the recovery holds up, it might be appropriate to “begin discussing a plan for adjusting the pace of asset purchases.”

Wednesday’s Fed minutes were “effectively the first introduction of official talk of tapering ... (but) gold is up, driven by the fact that we’ve seen yields and the dollar reverse a little bit,” said Bart Melek, head of commodity strategies at TD Securities.

“The view out there is though the Fed was talking about tapering, in reality, it’s very unlikely that we’re going to have an imminent reduction in monetary accommodation,” Melek added.

Benchmark U.S. Treasury yields eased, while the dollar dropped, making bullion cheaper for holders of other currencies.

An eventual monetary tightening by the Fed will take the sheen off bullion’s appeal as it translates into a higher opportunity cost of holding the non-yielding asset.

Gold’s gains came despite a drop in the number of Americans filing new claims for unemployment benefits.

Inflation expectations are working in favor of the metals market, said Kitco Metals senior analyst Jim Wyckoff.

“A problematic price inflation has been a bullish element for the metals markets because then investors will buy hard assets like the metals as a hedge against inflation,” Wyckoff added.

Among other precious metals, palladium eased 0.1% to $2,866.67 per ounce, silver rose 0.5% to $27.90, while platinum climbed 0.9% to $1,201.96. (Reporting by Sumita Layek in Bengaluru; Editing by Jonathan Oatis, Will Dunham and Richard Chang)