* Focus still on timing of reduction in U.S. stimulus
* Prices recover after big fall on positive U.S. data
(Updates prices, adds comment)
LONDON, Dec 13 (Reuters) - Gold rose 1 percent on Friday, helped by some buying after a sharp plunge in the previous session, but remained vulnerable to downside pressure as the market parsed U.S. economic headlines ahead of a central bank meeting next week.
Uncertainty over the timing of a reduction in U.S. monetary stimulus has unnerved bullion investors in the past few months. Increased central bank liquidity had supported gold by keeping interest rates low and stoking inflation fears.
Stronger-than-expected U.S. retail numbers on Thursday, adding to last week's forecast-beating jobs report, strengthened speculation the Federal Reserve could start winding down its bond purchases at its Dec. 17-18 meeting, although the market consensus is still for March.
Adding to the rosier economic picture was news that U.S. lawmakers had struck a tentative budget deal that would avoid a government shutdown in January.
The slew of upbeat economic data sent gold tumbling 2.2 percent on Thursday, its biggest fall in 10 days.
Spot gold climbed 1.2 percent to a session high of $1,238.50 and was still up 1 percent at $1,236.10 an ounce by 1547 GMT. U.S. gold futures for February delivery rose $11.10 to $1,236.00.
"We had a big decline yesterday and this is really a round of short-covering going on right now," said HSBC analyst James Steel.
Traders were forced to buy back the metal that they had agreed to sell at a future date in expectations its price would fall.
"The data, as well as the budget deal, have been modestly encouraging, and it shifted opinion back towards tapering in December and now we're ebbing back a bit," Steel added. "I think the market is just trying to re-adjust after yesterday's decline."
Gold is headed for its first annual decline in 13 years as investors, encouraged by a recovering global economy, pull money from gold and channel it into riskier assets such as equities.
A stronger dollar on Friday, which earlier hit five-year highs against the yen on the improving U.S. economic picture, also rubbed some of the shine off gold.
A stronger greenback is negative for gold as it makes the metal more expensive to holders of other currencies.
"You're still at the mercy of the dollar sentiment and expectations for (the Fed meeting) next week," VTB Capital analyst Andrey Kryuchenkov said.
Holdings in SPDR Gold Trust, the biggest gold ETF, fell the most in nearly two months on Thursday. The fund has not seen inflows in more than a month, hinting that a substantial upside in prices is limited, traders said.
Other precious metals took their cue from gold, with silver rising 1.2 percent to $19.68 an ounce. Platinum was flat at $1,358.99, and palladium gained 0.5 percent to $718.50.
In a sign of the toll that labour unrest in South Africa is taking on mining companies, Northam Platinum said on Friday it expected to lose 500 million rand ($48 million) this year due to a strike by more than 7,000 employees and that talks to end the walk-out would resume only next year.
(Reporting by Julia Fioretti; editing by Keiron Henderson and Jane Baird)