PRECIOUS-Gold bounces off lows, still pressured by stronger dollar

* Gold on track for 3rd daily decline

* Platinum, palladium hit 2-month lows

* Comments by Fed chief Powell bring gold off session lows

* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl

(Recasts throughout; updates prices, headline; adds comment, NEW YORK to dateline) NEW YORK/LONDON, March 1 (Reuters) - Gold prices fell about 1 percent on Thursday and hit two-month lows during the session, pressured as the dollar shot to a six-week high and investors braced for expected U.S. interest rate hikes after Federal Reserve Chairman Jerome Powell testified before Congress this week. Gold was on track for its third straight daily decline. Palladium and platinum both hit two-month lows, extending losses that began earlier this week when a German court ruled that cities can ban the most heavily polluting diesel cars from their streets. Diesel-burning autos use those metals as autocatalysts.

Spot gold fell 0.9 percent at $1,306.44 per ounce by 1:42 p.m. EST (18:2 GMT), while U.S. gold futures for

April delivery settled down $12.70, or 1 percent, at $1,305.20. Spot prices earlier hit their weakest since Jan. 2 at $1,304.61. Gold bounced off session lows after Federal Reserve Chair Jerome Powell told the Senate Banking Committee the U.S. central bank did not see evidence of a decisive advance in wages. His remarks tempered some market concerns after his testimony on Tuesday sparked worries about more interest rate hikes, sending gold lower. Higher interest rates discourage investing in gold, which does not bear interest. Still, the dollar rose after solid U.S. economic data stoked expectations the Fed could raise interest rates as many as four times this year. A stronger dollar pressures gold, making it more expensive for holders of other currencies. "We're down on the stronger dollar today, and we're still hearing interest rate expectations. The euro slipped after European inflation numbers showed inflation was not picking up as much as expected," said Chris Gaffney, president of world markets at EverBank. But Powell's latest comments struck a more dovish tone, Gaffney said. Still, the dollar kept near its six-week high. Capital Economics analyst Simona Gambarini said that as inflationary pressures build, the Fed will hike interest rates From a technical perspective, gold was on the defensive after again failing to break above resistance at $1,362 an ounce in mid-February, Commerzbank said in a note.

Silver dropped 0.7 percent to $16.29 an ounce,

hitting $16.16, its lowest since Dec. 22.

Platinum was down 2.8 percent at $955.90 per ounce

after touching a two-month low at $950.50 and palladium dropped 6.3 percent to $976.97, touching a 2-1/2 week low of $976. In addition to worries about a potential clampdown on diesel vehicles in Germany, "the overall lack of growth in the European economy may also be weighing," Gaffney said.

(Additional reporting by Eileen Soreng in Bengaluru Editing by David Goodman/Edmund Blair/Alexander Smith)