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PRECIOUS-Gold on course for biggest weekly loss in 2 months

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* Investors consolidate; $1,760/50 seen as support level * U.S. producer prices rise in September * China, India demand falls By Clare Hutchison

LONDON, Oct 12 (Reuters) - Gold eased on Friday, set for itsbiggest weekly loss in two months, but prices were still insight of recent 11-month highs as wider markets sought clarityon when and whether Spain would request a bailout to shore upits finances.

Standard & Poor's cut the country's credit rating to onenotch above junk on Wednesday, while the country's economyminister said on Friday there was no political resistance to abailout request for within the euro zone.

Spot gold was 0.1 percent lower at $1,766.24 perounce at 1354 GMT. U.S. gold futures were also lower at$1,768.0.

Bullion, which is seen as a hedge against inflation,briefly moved in positive territory as investors reacted to U.S.data showing a greater-than-expected acceleration in producerprices in September.

But it soon returned to previous levels and looked set for aweekly decline of 0.8 percent, its biggest weekly drop in sinceAug 5.

"It needs a little time to find a floor, which in the nearterm is likely to be $1,750, but I don't see a compelling reasonfor it to drop below that," said HSBC's James Steel.

VTB Capital analyst Andrey Kryuchenkov said the market wastaking time to consolidate.

"Investors are very cautious; exchange-traded products arenear record highs, long speculative positions are substantial,"he said.

Further slippage could be on the cards as the market islacking momentum, but loose monetary policy measures adopted bymajor central banks were expected to support prices in the longrun.

A recent poll by Reuters found that analysts remain bullishon the outlook for gold .

Credit Suisse said on Friday it had raised its 2013 averageprice forecast for bullion to $1,840 per ounce from $1,720 perounce. The bank also revised its forecast for silver to $33.10from $29.20 per oz.

PHYSICAL BUYING SLOWS

In India, a softening rupee has pushed up local gold pricesand is dragging on buying interest from elsewhere in thecountry.

Meanwhile, net gold flows from Hong Kong to China in Augustdropped 26 percent from a year earlier, as high gold prices anda slowdown in economic growth weighed on appetite, official HongKong trade data showed.

"China and India, as the world's largest gold consumers, area big reason as to why gold has stayed high over the last year.But push the price too high and we then have to rely onspeculative interest to sustain it, which is never a great wayto keep a rally going," said David Govett, head of PreciousMetals at Marex Spectron.

Holdings of gold-backed exchange-traded funds

also fell for the first time in two weeks onThursday, but were still close to a record high of 75.03 millionounces.

Among other metals, platinum was slightly lower in theabsence of fresh news from South Africa, where industrial unresthas shuttered the operations of major platinum miners includingAnglo American Platinum , the world's largest producerof the metal.

Spot platinum was 0.4 percent lower at $1,668.24 perounce.

Wildcat strikes broke out in South Africa's platinum belt inAugust and quickly spread across other sectors of Africa'slargest economy. Around 100,000 workers remain on strike,including 75,000 in the mining industry.

Palladium fell 0.9 percent to $657.81 per ounce.

Spot silver was lower at $33.79, heading for a weeklyloss of 2 percent.

(Reporting by Clare Hutchison in London Rujun Shen inSingapore; editing by Veronica Brown and Keiron Henderson)

((Clare.Hutchison@thomsonreuters.com +44)(0)(20 7 542 3346))

Keywords: MARKETS PRECIOUS