PRECIOUS-Gold cuts losses, set for biggest weekly gain in nearly 2 years
* Gold falls after four days of gains
* U.S. dollar rebounds after four-day slide
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LONDON, July 12 (Reuters) - Gold cut some earlier losses on Friday and was on track for its biggest weekly gain in nearly two years on easing fears of an early end to the U.S. Federal Reserve's monetary stimulus.
Bullion had taken a beating after Fed Chairman Ben Bernanke said in May and June that the U.S. economy was recovering strongly enough to slow the pace of the $85 billion of monthly bond purchases.
The tapering would support a rise in interest rates and bolster the dollar, reducing gold's attractiveness.
But the tone of the central banker's language became more doveish on Wednesday, when he suggested the bond purchases could last longer. And minutes from a June Fed meeting showed officials were divided over when to end the stimulus.
Spot gold touched a low of $1,267.29 an ounce earlier as the dollar's rebound strengthened, briefly curbing its biggest weekly climb since October 2011 to a best performance in 11 weeks. It was trading down 0.4 percent at $1,279.80 by 1349 GMT. Analysts said the metal now faces strong resistance crossing the $1,300 level.
Comex gold futures for August delivery also retreated from a two-and-a-half week high near $1,300 hit in the previous session to $1,278.70 an ounce, down $1.20.
"We are going to see a range of $1,200 to $1,300 for the short term, and trade may stay pretty volatile after the Fed has walked a fine line with withdrawing QE at the right pace," Standard Chartered analyst Daniel Smith said.
"There is also a lot of division within the Fed in terms of what the best approach towards bond-buying tapering is, so we may see the market jumping around as a result of that."
The dollar rose broadly after falling for most of the week, while European shares turned flat after initial gains.
Data showed that U.S. producer prices rose more than expected in June, pointing to an apparent increase in inflation.
Gold is usually seen as an hedge against inflationary pressures, but a rise in inflation could also make the Fed more comfortable about reducing its stimulus.
Many still expect gold to end lower this year as investors jump into generally rallying stocks, dumping holdings in gold-backed exchange traded funds, and physical demand slows as refineries start shutting for house-keeping during the summer.
"Sentiment has not changed towards gold and investors are still reluctant to step in, while physical buyers remain sidelined," VTB Capital analyst Andrey Kryuchenkov said.
Holdings of the world's largest gold-backed exchange-traded fund SPDR Gold Trust remained unchanged at four-and-a-half year lows of 30.192 million ounces on Thursday. The fund posted the biggest weekly loss of 2.6 percent since the end of April.
Silver fell 1.3 percent to $19.83 an ounce, having reached a three-week high of $20.26 on Thursday. Platinum was down 0.5 percent to $1,397.99 an ounce after hitting a three-week high of $1,414.75 earlier. Palladium slipped 0.1 percent to $715.50 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Keiron Henderson)