* Dollar up on talk Trump might pick policy hawk for Fed
* Palladium off highest in over 16 years hit on Monday
* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl
(Updates throughout, adds LONDON dateline) LONDON, Oct 17 (Reuters) - Gold prices fell to a near one-week low on Tuesday on speculation that the eventual successor to U.S. Federal Reserve Chair Janet Yellen will favour higher interest rates, denting bullion's appeal.
Spot gold was down 0.3 percent at $1,289.66 an ounce as of 1040 GMT, while U.S. gold futures for December
delivery slipped 0.9 percent to $1,291.70 per ounce. "It's partly (the possibility of a Hawkish Fed chair) and that the Fed is going to and needs to hike rates this year that is contributing to a bullish dollar environment," said Martin Arnold, commodities analyst at ETF Securities. U.S. President Donald Trump was favouring policy hawk John Taylor as the next head of the Fed, Bloomberg reported , pushing the dollar higher and lifting U.S. Treasury yields. Taylor, a Stanford economist, is seen as more likely to raise rates than Yellen, which would boost the dollar and dent gold and U.S. Treasuries. Trump will meet with Yellen on Thursday as part of his search for a new candidate for her position, a source familiar with the planned meeting said. Gold generally declines in appeal when rates are higher as it yields no interest.
Palladium , used mainly in auto catalytic converters,
rose 1.1 percent to $983 an ounce, after hitting its highest since February 2001 in the previous session. Analysts are wary about the price of palladium overheating on higher demand in the world's biggest auto market, China, and an expected supply deficit this year. "While fundamentals in palladium are good, they are not supportive of the kind of gains we have seen this year," Arnold said. "Palladium is looking well and truly overdone." The Fed will probably need to raise rates in December and then three or four times "over the course of next year", assuming U.S. unemployment continues to fall and inflation rises, Boston Fed President Eric Rosengren said. Raising political tensions, Iraqi government forces captured the Kurdish-held oil city of Kirkuk on Monday, responding to a Kurdish referendum on independence with force and transforming the balance of power in the oil-producing country. Meanwhile, the United States is not ruling out the eventual possibility of direct talks with North Korea, Deputy Secretary of State John J. Sullivan said on Tuesday, hours after Pyongyang warned nuclear war might break out at any moment.
Silver fell 0.4 percent to $17.12 an ounce while platinum was 0.3 percent lower at $925.95, having touched
a one-week low.
(Additional teporting by Apeksha Nair in Bengaluru; Editing by Dale Hudson)