* Spot gold hits highest since June 26
* Palladium touches strongest since June 21
(Adds more analyst comment, updates prices, changes dateline from BENGALURU) LONDON, July 9 (Reuters) - Gold extended its recovery on Monday, touching the strongest in nearly two weeks as the dollar weakened, the Chinese yuan rebounded and some investors reversed their bearish gold bets.
Spot gold was up 0.7 percent at $1,262.86 an ounce by
0945 GMT, its highest since June 26.
U.S. gold futures for August delivery rose 0.7
percent to $1,264.20 an ounce. There has been a strong correlation recently between the yuan and gold, analysts said. "I think most likely the yuan will remain volatile but (I don't expect ...) aggressive weakness, so that means the only thing that is driving gold at the moment is the dollar, which is somewhat weaker," said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam. The yuan rose half a percent in offshore markets to 6.6292
against the dollar , further away from the lows hit in
June - its biggest ever monthly fall -, while the dollar index weakened. A weak U.S. dollar makes greenback-denominated gold cheaper for holders of other currencies. OCBC analyst Barnabas Gan said some investors had bought gold to cover their short positions. "With the ongoing U.S.-Sino trade tensions, the resignation of David Davis will likely be a side-show, though it may raise some concerns amongst market-watchers depending on how the overall Brexit issue progresses," he added. Britain's Brexit Secretary David Davis said on Monday he had resigned to try to stop Prime Minister Theresa May from handing too much power to the European Union, increasing the pressure on a British leader struggling to overcome Brexit divisions. It was unclear whether a rebound in spot gold would continue after it hit a seven-month low of $1,237.32 last week, Boele said. "This could already be the bottoming out, but I think you will still get another test lower, because we expect a recovery in the dollar and higher yields for the coming quarter."
Holdings of SPDR Gold Trust , the world's largest
gold-backed exchange-traded fund, fell 0.15 percent to 802.24 tonnes on Friday.
Among other precious metals, silver rose 1.2 percent to $16.18 an ounce and platinum gained 2 percent to
$857.50 per ounce. Both the metals hit their highest since June 27 during the session.
Palladium gained 1.1 percent to $963.10 an ounce, its
highest since June 21.
(Additional reporting by Karen Rodrigues in Bengaluru; Editing