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PRECIOUS-Gold steady ahead of 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) LONDON, Oct 12 (Reuters) - Gold prices held near two-week highs as focus shifted to U.S inflation figures due on Friday which are expected to give more clues on monetary policy.

After four straight session of gains, spot gold was

steady at $1,291.34 an ounce at 1400 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 pick up in inflation and slowing the path of future interest rate rises if it did not. The dollar inched up after U.S. data showed new applications for U.S. unemployment benefits last week fell to a more than one-month low after being boosted by two hurricanes.

But the greenback still languished near two-weeks lows against a basket of currencies, weighed down by the U.S Fed minutes which the market interpreted as dovish. 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 slipped 0.2 percent to $17.12 an ounce after

touching a three-week high.

Platinum was 0.9 percent higher at $935.90 an ounce,

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

Palladium jumped 2.4 percent to $983, 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 Jane Merriman and Mark Potter)