PRECIOUS-Gold inches higher as dollar pares gains

* Spot gold could fall to $1,250 by mid year - Julius Baer

* Falling digital currencies could support gold - analysts

(Adds more analyst comments, update prices, adds LONDON dateline) LONDON, Jan 18 (Reuters) - Gold edged higher on Thursday after hitting its lowest in nearly a week as the dollar pared gains, but analysts said bullion was vulnerable to more losses.

Spot gold was up 0.2 percent at $1,330.01 per ounce

Jan. 12 at $1,323.70.

U.S. gold futures for February delivery slipped 0.7

percent to $1,330.20 per ounce. In the previous session, spot gold fell 0.8 percent, posting its worst one-day percentage decline since Dec. 7 as the dollar bounced from three-year lows. "Gold continues to trade in lock-step with the U.S. dollar," said Carsten Menke, analyst at Julius Baer in Zurich. "We think the dollar has fallen too much. We see more upside for the dollar heading into the second quarter so that means that gold should move back below $1,300 and towards $1,250 by mid-year."

The dollar index gained as a rise in U.S. Treasury

yields prompted some investors to buy the greenback, but it drifted back from its highs. The dollar got a boost after data showed on Wednesday that U.S. industrial production increased more than expected in December. Spot gold is expected to fall to $1,311 per ounce, as it has broken a support at $1,329, according to Reuters technical analyst Wang Tao. Some analysts said a correction in digital currencies could support gold. "Brokers in Europe report investors have increasingly been asking about switching from cryptocurrencies into gold," ANZ analysts said in a research note.

Bitcoin fell as much as 20 percent on Wednesday,

dropping below $10,000 due to investor fears that regulators could clamp down.

In other precious metals, silver gained 0.5 percent to $17.09 per ounce and palladium shed 0.9 percent to

$1,105.80 per ounce.

Platinum added 0.5 percent to $1,001.40 per ounce,

after touching its highest since Sept. 8 at $1,007.60 in the previous session.

(Additional reporting by Nallur Sethuraman and Nithin Prasad in Bengaluru; Editing by Andrew Heavens)