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PRECIOUS-Gold steadies after hitting near 3-month peak on rate cut hopes

Diptendu Lahiri

* Fed Chair Powell opens door to the possibility of rate cut

* GLD fund posts biggest one-day percentage gain since mid-2016

* Silver hits three-week peak (Adds comments, details, updates prices)

June 4 (Reuters) - Gold steadied below a three-month peak on Tuesday on news China was open to negotiating its trade dispute with the United States, while rising expectations the U.S. Federal Reserve will cut interest rates provided underlying support.

China's commerce ministry on Tuesday urged dialogue and negotiation to resolve the trade differences, which have roiled financial markets.

Spot gold eased 0.1% to $1,324.01 per ounce as of 1:43 p.m. EDT (1743 GMT), after touching its highest since Feb. 27 at $1,328.98 earlier in the session. U.S. gold futures settled up 0.1% at $1,328.70 per ounce.

"Headlines have come up saying U.S.-China trade dispute can be negotiated over talks which is pushing gold down," said Afshin Nabavi, senior vice president at MKS SA.

"The metal will seek support at around $1,316 and we will mostly see it going up again from there."

Gold prices were also pressured by a rally in equities after Fed Chair Jerome Powell said the central bank would act "as appropriate" in the face of trade war risks, leaving the door open for a possible rate cut.

Wall Street's main indexes have shed more than 6% in May on fears of a recession as U.S.-China trade tensions showed little signs of easing.

"Investors are exiting the safe-haven asset at a higher price and putting their money in equities, which is gaining today," said Jeffrey Sica, founder of Circle Squared Alternative Investments.

"The rise in the equities market is actually overpowering the effect of Powell's comment on rate cuts," Sica added.

Meanwhile, gold has climbed over 4% since hitting a one-week low of $1,274.44 an ounce last week, mainly on the back of escalating trade tensions and expectations the Fed would cut rates to offset the impact of the U.S.-China trade war.

"The likelihood of economic and equity markets turmoil will support gold, as it will trigger safe-haven inflows, force the Fed to cut rates and cap U.S. dollar's upside," Societe Generale said in a note.

Lower interest rates cut the opportunity cost of holding non-yielding commodities, while gold also tends to benefit from growth concerns as an alternative to cyclical assets like stocks.

Reflecting increased investor interest in bullion, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 2.2% on Monday, its biggest one-day percentage gain since July 2016.

Elsewhere, silver rose 0.1% to $14.79 per ounce, after touching a three-week high of $14.84 in the session.

Platinum fell 0.2% to $818.75 per ounce after hitting a more than two-week high of $825.78. The metal had marked its biggest intraday percentage gain in 2-1/2 years on Monday.

Palladium jumped 1.6% to $1,344.15 per ounce. (Reporting by Swati Verma and Eileen Soreng in Bengaluru; Editing by Tom Brown)