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PRECIOUS-Gold rises but U.S. rate expectations cap gains

* Silver hits two-week high above $17/oz

* Platinum touches highest in nearly two weeks

* Dollar falls for third day running

(Recasts, updates prices, adds detail, quote; changes dateline) LONDON, Oct 10 (Reuters) - Gold touched its highest in nearly two weeks on Tuesday, supported by a softer dollar and geopolitical tensions in Spain and North Korea, though gains were capped by expectations of another U.S. interest rate increase. Investors were particularly wary on Tuesday as Pyongyang celebrated the founding of its ruling party, a day after Russia and China both called for restraint on North Korea following a Twitter post from U.S. President Donald Trump hinting that military action was on his mind. In Spain, Catalonia's secessionist leader Carles Puigdemont is due to address the region's parliament in Barcelona, where he could ask the assembly to vote on a unilateral declaration of independence.

The dollar index ran into some profit-taking but was

still in reach of a 10-week high scaled on Friday when surprisingly strong U.S. jobs data enhanced already high expectations that the Fed would raise rates in December. "The Fed is going to raise rates, so we see gold breaking out of the (current) range down to the $1,250 level, with geopolitical tensions supporting the downside," said Societe Generale analyst Robin Bhar.

Spot gold was up 0.4 percent at $1,291.53 an ounce by

1009 GMT, having earlier touched its highest since late September at $1,291.82.

U.S. gold futures for December delivery climbed 0.7

percent to $1,294.20. Fed funds futures showed traders were pricing in a nearly 90 percent chance of a December rate increase. Gold is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion. Higher interest rates also tend to boost the U.S. currency, making dollar-priced gold costlier for non-U.S. investors. Reuters technical analyst Wang Tao sees spot gold still targeting $1,299 an ounce, having broken resistance at $1,281.

"Gold had clearly been oversold, meaning that a technical countermovement was only a question of time. Gold ETFs have also been in demand again, and gold demand likewise appears to be picking up again in India," Commerzbank said in a note. In the wider markets, global shares ground out a record high on Tuesday, capping gains in safe-haven gold. "We still reiterate our view ... that the precious metal will likely remain under pressure over the short term, as we see a firmer dollar, resilient equity markets, rising interest rates and slightly quieter geopolitical conditions all combining to keep serious rallies in check," INTL FCStone said in a note.

In other precious metals, silver rose 1.1 percent to

$17.13 an ounce, having touched a two-week high of $17.16. "The gold-silver ratio is trading above the 10-year average, suggesting silver is undervalued," Standard Chartered said in a note. "Silvers supply and demand dynamics are supportive of higher prices in light of stagnating mine output and firming industrial demand. Indias silver imports are up almost 60 percent for the year to August while Chinas are up 45 percent."

Platinum was up 1.7 percent at $923.74 an ounce,

having hit its highest in nearly two weeks, while palladium rose 0.3 percent to $931.90.

(Additional reporting by Apeksha Nair in BENGALURU; Editing by David Goodman)