PRECIOUS-Gold prices fall as dollar hits fresh peak; rebound seen

* Spot gold down over 2 pct for the week

* Dollar index hits fresh five-month high

* Benchmark U.S. yields near 7-year peak

(Adds more analyst comment, updates prices, changes dateline from BENGALURU) LONDON, May 18 (Reuters) - Gold prices dipped on Friday, weighed down by a firmer dollar, but some traders said signs pointed to a rebound.

Spot gold was down 0.3 percent at $1,286.56 per ounce

at 1025 GMT, after hitting its lowest since Dec. 27 in the previous session at $1,285.41. The metal was heading for its biggest weekly decline since early December.

U.S. gold futures for June delivery fell 0.3 percent

to $1,286 per ounce. "There are many drivers that are pointing to an upside in the precious metals, so we're buying into this weakness," said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan. The sentiment index is gold was indicating it was strongly oversold while the dollar was heavily overbought, while U.S. inflation measures were rising, he added. Data on Thursday showed a tightening U.S. labour market and factory activity in the mid-Atlantic region picking up, bolstering expectations the Federal Reserve will raise interest rates next month. "We think there is room for a strong rally into the summer and we have a gold target of $1,430 by August," Torlizzi said.

The dollar index rose to a fresh five-month peak on Friday as the benchmark U.S. Treasury yield hit the

highest in nearly seven years. "The 10-year U.S. yields put the dollar on a firm foot and put pressure on metals and gold," said a Hong Kong-based trader, adding that some "risk-on" sentiment in markets today was also adding pressure. A stronger greenback makes dollar-denominated gold more expensive for users of other currencies, while higher U.S. yields dampen the appeal of non-yielding bullion. Spot gold is still targeting $1,302 per ounce as it has stabilised around a support at $1,287, Reuters technical analyst Wang Tao said.

In other metals, silver shed 0.2 percent to $16.39 an

ounce.

Palladium fell 0.2 percent to $975.72, while platinum

dropped 0.7 percent $882.49 per ounce after hitting a five-month low at $879 on Thursday. All three metals were heading for weekly losses.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by Adrian Croft)