* Dollar index falls 0.2 percent vs basket of currencies
Physical demand slows on overnight price gains
By Clara Denina
LONDON, Nov 26 (Reuters) - Gold fell back from a one-week high on Tuesday and remained vulnerable to further losses on uncertainty over the U.S. stimulus outlook and lacklustre physical demand.
Spot gold fell 0.5 percent to $1,246.61 an ounce at 1257 GMT. It hit $1,256.49 in early trade, its highest since Nov. 20.
U.S. gold futures were up 0.4 percent to $1,246.20 an ounce.
On Monday, spot gold fell to a 4-1/2-month low near $1,225 an ounce after a deal halting Iran's most sensitive nuclear activities drove oil prices lower and lifted the dollar and equities.
But prices recovered to gain nearly 1 percent as investors covered short positions, while options-related buying also helped the metal higher.
Gold fell below $1,300 an ounce on Nov. 7 after a series of positive U.S. economic data raised speculation that the Federal Reserve would taper its economic stimulus before the end of the year.
Traders expect prices to be pressured until there is a definitive timeline on when the U.S. Federal Reserve will begin cutting its quantitative easing programme.
"No significant data will be published this week and gold will be more or less treading water and will be driven probably by the U.S. dollar and ongoing discussions on when the Fed will start tapering," Commerzbank analyst Daniel Briesemann said.
Gold prices have lost about a quarter of their value this year on fears the Fed would begin tapering the $85 billion in monthly bond purchases that have burnished bullion's appeal as a hedge against inflation.
The next major data release is on Dec. 6, when nonfarm payroll data is scheduled. The Fed's next policy meeting will be held on Dec. 17-18.
The dollar index was down 0.2 percent as U.S. 10-year Treasury yields slipped after data on Monday showed contracts to buy previously owned U.S. homes hit a 10-month low in October.
"Given the market is still positioned short, we can continue to expect bouts of volatility," ANZ analysts said in a note.
"The overnight move does little to change our view that the market will continue to trade in a weak fashion while physical demand remains lacking."
Physical demand, which usually provides a floor to prices, has failed to pick up the way it did earlier this year when prices fell over $200 an ounce in two days.
Buying picked up when prices fell below $1,230 on Monday but quickly died down as these shot up again, dealers said.
Premiums in Shanghai for 99.99 percent purity bars fell to about $8 an ounce on Tuesday from $13 in the previous session.
Outflows from gold funds continued, with SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, losing 3.30 tonnes on Monday. Outflows from the ETF, about 450 tonnes so far this year, have played a big role in denting prices.
Silver extended earlier losses, falling 1.5 percent at $19.99 an ounce, having touched its lowest since mid-August at $19.54 in the previous session.
Spot platinum lost 0.5 percent to $1,376.74 an ounce, while spot palladium dropped 0.4 percent to $715.97 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by James Jukwey)