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CORRECTED-PRECIOUS-Gold rises on safe-haven appeal after Catalonia declares independence

independence@ (Corrects spelling of name in paragraph 3 to Dan Hussey, not Dan Huffey)

* All precious metals headed for weekly decline

* Dollar pares gains but still near 3-mnth high

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

NEW YORK/LONDON, Oct 27 (Reuters) - Gold edged higher on Friday, reversing earlier losses after the Catalonian parliament's independence declaration from Spain led investors to seek safety from political upheaval. Catalonia's declaration was in defiance of the Madrid government, which was preparing to impose direct rule over the region. "Catalonia is a small microcosm of the total European situation. But what it represents is the idea of an unstable European Union," said Dan Hussey, senior market strategist at RJO Futures in Chicago. "(These are) all reasons why we would look for a safe haven like gold to rally," he added. Bullion is often used as a safe haven in times of geopolitical and economic uncertainty, while riskier assets such as equities are generally sold off.

Spot gold was up 0.3 percent at $1,270.36 an ounce by

2:02 p.m. EDT (1802 GMT), heading for its second consecutive weekly decline. Gold had earlier dropped to a three-week low of $1,263.35.

U.S. gold futures for December delivery settled up

$2.20, or 0.2 percent, at $1,271.80 per ounce. "Gold went up on the back of the Catalonia independence, but I still think it's not going to last long because the dollar is still trading at high levels," said Forex.com analyst Fawad Razaqzada.

The dollar index came off its session high on a

Bloomberg report of U.S. President Donald Trump eyeing Federal Reserve Governor Jerome Powell as his pick to head the U.S. central bank. Yet, the greenback was still trading near a three-month high, limiting gold's gains as it makes dollar-priced commodities costlier for non-U.S. investors. According to a Politico report, Trump's search for the next Fed chair has come down to Fed Governor Jerome Powell and Stanford University economist John Taylor. "The market is not pricing in more aggressive rate hike from the Fed even given a potential change in leadership next year. We are likely to see the same rate hike path," ETF Securities commodity strategist Martin Arnold said. Elsewhere, the U.S. House of Representatives helped pave the way on Thursday for deep tax cuts sought by Trump and Republican leaders, underpinning the greenback. Holdings of the world's largest gold-backed exchange-traded

fund, New York-listed SPDR Gold Shares , fell by 1.2 tonnes

on Thursday, data from the fund showed, its first outflow in more than two weeks.

Silver rose 0.1 percent at $16.77 per ounce, platinum

dipped 0.7 percent at $910.85 an ounce, while palladium slipped 0.1 percent at $967.50 an ounce. All three metals were on track for weekly declines.

(Additional reporting by Arpan Varghese in Bengaluru; Editing