* Dollar weakest since January 2015
* Gold up 1.7 percent this week
* Could reach 2016 high of $1,375/oz -analysts
* Palladium retreats from 16-year high
(Updates prices, adds comment, NEW YORK dateline) NEW YORK/LONDON, Sept 8 (Reuters) - Gold held near its highest in more than a year on Friday as the U.S. dollar dropped and weak economic data lowered expectations of a December interest rate rise in the United States. The U.S. dollar hit a more than 2-1/2-year low against a basket of major rivals on reduced expectations for another Federal Reserve rate increase this year, while the euro hit multi-year highs after European Central Bank President Mario Draghi suggested that the ECB might begin tapering its massive stimulus program this fall. A weaker dollar fuels demand for gold by making it cheaper for holders of other currencies, and lower bond yields reduce the opportunity cost of owning non-yielding bullion. Interest rate rises push up bond yields and boost the dollar.
Spot gold was down 0.1 percent at $1,347.8 by 3:43
p.m. EDT (1943 GMT) after hitting $1,357.54, its highest since August 2016. It was up 1.7 percent this week, notching a third consecutive weekly gain.
U.S. gold futures for December delivery settled at
$1,351.2. Julius Baer analyst Carsten Menke pinned the rise to the weak dollar and hopes that interest rate rises would be delayed. New York Federal Reserve President William Dudley in a speech on Thursday did not repeat an assertion three weeks ago that he expects to raise rates once more this year. Demand for gold as a safe haven investment was strong as South Korea braced for a possible further missile test by North Korea when it marks its founding anniversary on Saturday.
But high prices have weakened demand for physical gold in top consumer Asia. "By its own account, the Chinese central bank (PBoC) bought no gold in August, either," Commerzbank said in a note. "This was already the tenth consecutive month in which the PBoC did not further increase its gold reserves." Technical resistance was at $1,353, gold's peak last September, but upward momentum could lift it to the 2016 high of $1,375, ScotiaMocatta analysts said.
In other precious metals, silver was down 0.3 percent
at $18.01 an ounce after touching $18.21, its best since April. It rose about 2 percent on the week.
Palladium was 2.1 percent lower at $934.78 an ounce
and fell more than 4 percent on the week, the first decline in seven weeks. The metal used in catalytic converters that curb pollution from vehicle exhausts is trading near its highest since 2001. But car output in China and the United States is falling and shortages of metal are unlikely, said Capital Economics analyst Simona Gambarini in a note. She said palladium looked increasingly vulnerable to profit taking and would likely fall to $850 by the end of the year.
Platinum was down 0.7 percent at $1,008.40 after
touching touched $1,022.70, its highest since March.
(Additional reporting by Apeksha Nair in Bengaluru; Editing by Alexander Smith and Richard Chang)