PRECIOUS-Platinum climbs on supply fears, gold treads water
* Platinum climbs 1.5 pct as strike, water curbs hit miners
* Gold holds in narrow range, awaits news on budget deadlock
* US shutdown drags on as debt-ceiling deadline looms
(Updates prices, adds comment)
LONDON, Oct 4 (Reuters) - Platinum rose on Friday on news that South African mines are facing water restrictions, while gold fell on a stronger dollar, though uncertainty over a budget deadlock that has led to a partial U.S. government shutdown kept it in a range.
South Africa's Department of Water Affairs said on Friday that platinum operations around the mining city of Rustenburg will face curbs on the amount of water they can use to mitigate problems caused by a drought.
That came after number one platinum producer Anglo American Platinum said a strike at its South African operations was cutting output by an average 3,100 ounces a day.
"With half the industry out on strike, plus the news we're hearing about water restrictions, platinum has had something of a step up," Mitsubishi analyst Jonathan Butler said.
"(It) just contributes to the difficult situation the producers find themselves in," he said. "Cost increases in water have been very significant in the last few years, contributing overall to the double-digit rises in inflation in the mining sector as a whole."
Spot platinum was up 1.1 percent at $1,377.24 an ounce at 1405 GMT, and is on track for its biggest one-day rise in 2-1/2 weeks.
South Africa is the source of three out of four ounces of the world's platinum. Threats to output there from strikes and other outages has helped the autocatalyst metal outperform gold this year, despite weakness in demand from European carmakers.
Gold fell as the dollar index rebounded from eight-month lows, although moves in most financial markets were muted as the U.S. government shutdown dragged on.
"There doesn't seem to be a lot of fear yet priced into financial markets (from the shutdown), and until there is, I don't think gold will do much," Deutsche Bank's global head of commodity research Michael Lewis said.
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Of more interest are developments surrounding the raising of the U.S. debt ceiling, which would have a much greater impact on perceptions of risk, he said. Congress must increase the country's borrowing limit on Oct. 17 or risk default.
"If (risk perceptions) started to deteriorate, that would affect growth expectations in the U.S., and that would then have an impact on the dollar and expectations for the tapering of the quantitative easing programme, and probably also the equity markets," he said.
"That would probably be quite constructive for gold."
Spot gold was at $1,308.86 an ounce, down 0.6 percent, while U.S. gold futures for December delivery were down $9.50 an ounce at $1,308.10.
Asian demand for physical gold picked up this week, especially in Japan and Thailand, when prices fell below $1,300 an ounce, but interest waned when the market moved off the lows.
The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, reported a second daily outflow on Thursday of 1.8 tonnes, suggesting investors' appetite for gold remains soft.
Spot palladium rose 0.1 percent to $698 an ounce, while spot silver fell 0.1 percent to $21.55 an ounce.
Russia's Norilsk Nickel, the world's biggest palladium producer, said on Friday its palladium production may increase by up to 2 percent by 2016.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by David Cowell)