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PRECIOUS-Gold rises as dollar sinks before U.S. inflation data

* Dollar index hits lowest since Sept. 26

* Palladium touches five-week high

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

(Updates prices, adds graphic) LONDON, Oct 12 (Reuters) - Gold rose to its highest level in two weeks as the dollar hovered near two-week lows ahead of U.S inflation figures on Friday which are expected to give more clues on monetary policy.

In its fifth straight session of gains, spot gold was

up 0.3 percent at $1,295.58 an ounce by 1135 GMT, after earlier

hitting $1,297.40. U.S. gold futures climbed 0.7 percent

to $1,298 per ounce. "If inflation were to rise more than expected or at least meet expectation ... this could underpin the dollar which could undermine gold," Fawad Razaqzada, an analyst at FOREX.com, said. Minutes from a September meeting by the U.S. Federal Reserve showed policymakers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not. The dollar was steady but was stuck near two-weeks lows against a basket of currencies on Thursday following the news.

Gold is highly sensitive to rising interest rates, as these tend to boost the dollar, in which the metal is priced. Several policymakers said they would focus on upcoming inflation data over the next few months when deciding on the central bank's future rate hike path. Political uncertainty also helped to support gold, which investors turn to during periods of turmoil, analysts said. "If people are not too worried about the Fed's policy, we have North Korea. Surely, geopolitical tensions are supporting prices ... we may try $1,300 next week," Yuichi Ikemizu, Tokyo branch manager at CIBC Standard Bank, said.

Silver rose 0.2 percent to $17.19 an ounce after

touching a three-week high.

Platinum was 0.5 percent higher at $932.45 an ounce,

after hitting a more than two-week high earlier in the session.

Palladium jumped 1.6 percent to $974, its highest

since Sept. 6. Discussions over a possible substitution between platinum group metals in auto catalysts will likely gather pace if the palladium continues to trade at a premium to the platinum, Bank of America Merrill Lynch said in a note earlier this month.

(Additional reporting by Apeksha Nair in Bengaluru; editing by Alexander Smith and Jane Merriman)