PRECIOUS-Gold steadies as U.S.-Mexico trade deal weighs on dollar, China ties in focus

* Spot gold may rise to $1,224/oz - technicals

* Palladium hovers near 1-1/2-month high

* GRAPHIC-2018 asset returns: (Adds comments, updates prices)

BENGALURU, Aug 28 (Reuters) - Gold steadied on Tuesday as the dollar hovered near a one-month low following a trade deal between the United States and Mexico, but concerns around a still developing U.S.-China trade row kept a check on prices of the precious metal.

Spot gold inched 0.1 percent higher to $1,212.33 by 0711 GMT, after falling as much as 0.3 percent earlier in the day. Prices on Monday hit their highest in two weeks.

U.S. gold futures were up 0.2 percent at $1,218.40 an ounce.

Gold has lost its appeal as a safe-haven asset, having fallen over 7 percent this year, amid international trade disputes and the Turkish currency crisis, with investors increasingly turning to the dollar instead.

The dollar index was down 0.1 percent against a basket of six major currencies. The greenback came under pressure on Monday after the United States and Mexico agreed to overhaul the North American Free Trade Agreement.

“The big elephant in the room is China. The trade escalation with China will play favourably into the U.S. dollar as a risk aversion trade,” said Stephen Innes, Asia-Pacific trading head at OANDA in Singapore. “The market is still a little bit nervous overall when it comes to buying into the weaker U.S. dollar narrative.”

Gold, however, has recovered after touching 1-1/2-year lows on Aug. 16 at $1,159.60 as the dollar’s run slowed after U.S. President Donald Trump criticized the Federal Reserve for raising interest rates at a time when the government was trying to stimulate the economy.

“We need a complete flip around momentum in the U.S. dollar for gold to push above $1,230 and move to $1,260. Unless the Fed takes the December rate hike off the table, gold does not have a chance to get near any of those supportive levels,” Innes said.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

Spot gold may rise to $1,224 an ounce, as it has broken a resistance at $1,209 per ounce, according to Reuters technical analyst Wang Tao.

Net shorts in COMEX gold contracts were at a record high.

“The short positions will not be covered till you see a major trigger for buying,” said Amit Kumar Gupta, portfolio management services head at Adroit Financial Services in New Delhi.

Spot silver was up 0.3 percent at $14.87.

Platinum rose 0.7 percent to $804.74, after touching a two-week high of $808.70.

Palladium fell 0.4 percent to $944.75. At $950.25, prices matched the 1-1/2-month highs hit on Monday. (Reporting by Nallur Sethuraman in Bengaluru Editing by Joseph Radford, Sunil Nair and Sai Sachin Ravikumar)