* Spot gold on track for best week in seven
* Spot gold may extend gains to $1,237/oz- technicals (Adds comment, updates prices)
BENGALURU, Oct 12 (Reuters) - Gold prices fell on Friday as Asian shares firmed, but the metal held near a more than 10-week high hit in the previous session when it breached a key resistance level, stoking optimism about a potential uptick in prices.
Asian stocks staged a rebound on Friday to set course for their first gains in two weeks, soothing investor sentiment, which was hit after a major volatility index, seen as Wall Street's fear gauge, rose to an eight-month high.
Spot gold was down 0.4 percent at $1,218.86 an ounce, as of 0738 GMT after jumping about 2.5 percent on Thursday, its sharpest gain since June 2016, as a rout in equities sent investors rushing to safe-havens.
U.S. gold futures were down 0.4 percent at $1,222.30 an ounce.
"Yesterday, investors were seeking a shelter to protect their investment, triggering safe-haven buying. Markets are slightly recovering now and the mood is starting to loosen up a little bit. We are also seeing a little bit of profit-taking in gold," said Benjamin Lu, commodities analyst, Phillip Futures.
"Although gold has receded today, if it is able to push higher and break above $1,235 an ounce, it may change the trend and lead to a lot of short-covering."
Thursday's surge ensured that bullion broke above a narrow trading range it has been stuck in for the past 1-1/2 months.
"With prices breaking the ... $1,200 level and also crossing $1,225, it could be a signal that the gold market is on the upside. Especially, given that during November and December, we also see increased physical buying," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
Gold has fallen more than 10 percent from a peak in April, with investors increasingly switching to the safety of the greenback as the U.S.-China trade war unfolds against a backdrop of rising U.S. interest rates.
But prices have recovered from a 1-1/2-year low of $1,059.96 hit in mid-August, propped up by limited safe-haven buying at lower levels linked to concerns over economic growth and inflationary pressure from soaring oil prices.
"Further declines in stocks will put pressure on gold speculators to square up initially, and since gold speculative (managed money) shorts outweigh longs, that implies short-covering," said Nicholas Frappell, global general manager, ABC Bullion, Australia.
Spot gold may extend its gains to $1,237 per ounce, as suggested by a Fibonacci ratio analysis, according to Reuters technical analyst Wang Tao.
Spot gold has gained about 1.4 percent this week, on track for its best weekly performance in seven.
Meanwhile, palladium was up 0.9 percent at $1,086.75, after hitting its highest since Jan. 26 at $1,096.80 in the previous session.
Silver was little changed at $14.56, while platinum was down 0.3 percent at $836.50. (Reporting by Vijaykumar Vedala in Bengaluru Editing by Joseph Radford and Subhranshu Sahu)