PRECIOUS-Gold slips towards $1,240/oz as U.S. dollar recovers

* Gold pulls back from two-week peak as US dollar steadies Biggest gold ETF holdings slip to lowest since February

* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl

(Updates prices; adds comment, second byline, NEW YORK dateline) NEW YORK/LONDON, July 19 (Reuters) - Gold slipped back towards $1,240 an ounce on Wednesday, after three straight day's of gains, as the U.S. dollar's recovered slightly from a 10-month low. Bullion held below Tuesday's 2-1/2-week high, when prices were buoyed by the failure of U.S. President Donald Trump's healthcare bill to pass the U.S. Senate and by waning expectations for further interest rate hikes from the Federal Reserve this year.

The U.S. dollar index rose 0.2 percent, with the euro

down 0.3 percent, however, taking upward pressure off gold.

Spot gold was down 0.05 percent at $1,241.35 an ounce

August delivery closed little changed, up 0.01 percent at $1,242. "With the sluggish dollar yesterday we had a bit of a move on the upside, but there seems to be some light profit taking coming in between $1,243-1,245," MKS's head of trading Afshin Nabavi said. The U.S. currency remained rangebound, however, with investors wary of making strong bets ahead of major central bank meetings. Expectations that U.S. monetary policy is on a tightening path kept gold hemmed into a narrow range in the last quarter after a strong start to the year. Signs that central banks in Europe and elsewhere are also turning away from ultra-loose monetary policies have also weighed on the precious metal. Gold is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion. Rising U.S. rates also lift the dollar, in which gold is priced. "It appears as if some Wall Street gold traders long from the $1,232 area are hoping for this rally to continue and would be satisfied heading for the exits around the $1,248-$1,252 range," said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals. "In the event the price of gold sells off, they will be watching the $1,232 level on the downside." Holdings of the world's largest gold-backed exchange-traded

fund, SPDR Gold Shares , fell 5.6 tonnes to 821.45 tonnes

on Tuesday, a low since early February. "We believe a large part of the interest rate hike (and) monetary tightening expectations are already priced in, so we don't think that should weigh too much more on gold prices," said ING analyst Warren Patterson.

Silver was up 0.2 percent at $16.28 an ounce, off an

earlier two-week high of $16.36.

Platinum fell 0.6 percent at $916.25, while palladium

was down 0.6 percent at $858.75 an ounce.

(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru, Editing by David Evans and Mark Potter)