PRECIOUS-Gold gains on U.S. growth data with lingering Italy uncertainty

* Dollar falls from 6-1/2 month peak

* Italy crisis sparks stock sell-off

* GRAPHIC-2018 asset returns:

(Updates prices, headline; adds comment, second byline, NEW YORK to dateline) NEW YORK/LONDON, May 30 (Reuters) - Gold prices edged higher on Wednesday as the dollar wilted after U.S. data showed the U.S. economy slowed slightly more than initially expected in the first quarter while political uncertainty lingered in Italy. U.S. gross domestic product increased at a 2.2 percent annual rate, the Commerce Department said in its second estimate of first-quarter GDP, instead of the previously reported 2.3 percent pace.

The news knocked the dollar lower against a basket of

leading currencies, away from near 6-1/2 month highs. A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies. "This has supported the EUR/USD exchange rate, which in turn has underpinned the price of the positively-correlating yellow precious metal," said analyst Fawad Razaqzada.

Spot gold was up 0.32 percent at $1,302.17 per ounce

June delivery settled up $2.50, or 0.2 percent, at $1,301.50 per ounce. Though gold prices edged higher, easing concerns of political strife in Italy dented the appeal for safe haven gold purchases, said Rob Haworth, senior investment strategist for US Bank Wealth Management. "Today we're still following the dollar and gold will probably be under pressure if Italian politics sorts itself out over the next day or two," Haworth said. Meanwhile, Italy searched for a last-minute exit from almost three months of political turmoil, with its biggest party looking to make a renewed attempt to form a coalition government with the right-wing League. Analysts said some uncertainty still remained over Italy even as a resolution was being sought. "I dont see any market-pleasing resolution to be honest, because a new caretaker government will not last long because it doesnt not have any majority in parliament," said Commerzbank commodity analyst Carsten Fritsch.

U.S. benchmark 10-year Treasury yields on Tuesday

registered their largest one-day drop since Brexit nearly two years ago. Higher rates generally dent demand for non-interest-paying gold. China on Wednesday lashed out at Washington's unexpected statement that it is sticking to the threat of imposing tariffs on $50 billion of Chinese goods, saying Beijing was ready to fight back in any trade war. But Capital Economics' Simona Gambarini said the potential trade war between China and the United States was mostly priced into gold, which would need an escalation or resolution to become a catalyst to prices again.

Meanwhile, spot silver was up 0.9 percent at $16.53

an ounce.

Platinum rose 0.5 percent at $908.60 an ounce, while palladium gained 0.2 percent at $981.22.

(Additional reporting by Karen Rodrigues in Bengaluru Editing by Mark Heinrich and Cynthia Osterman)