Wires

PRECIOUS-Gold extends fall as fading Middle East tensions boost risk appetite

Diptendu Lahiri

(Adds comments, details; updates prices)

* U.S. non-farm payrolls due at 1330 GMT

* Dollar index on track to post best week in 2 months

* SPDR Gold holdings fell 0.5% on Thursday

* Palladium set to register best week since mid-June

Jan 10 (Reuters) - Gold dipped on Friday and was on track for its first weekly decline in five as easing tensions in the Middle East rekindled appetite for higher risk assets.

Spot gold was down 0.2% at $1,549.90 per ounce by

1211 GMT, having fallen as much as 1% on Thursday to its lowest

since Jan. 3 at $1,539.78. U.S. gold futures were

0.2%lower at $1,550.90 per ounce. "There has been a spike in risk appetite among investors after tensions between the United States and Iran eased. That, along with a strong dollar, is weighing on gold," said Quantitative Commodity Research consultant Peter Fertig. World stocks were on track for new highs, driven by the thaw in U.S.-Iran tensions. Further boosting risk sentiment, the U.S. House of Representatives on Thursday passed a resolution to stop U.S. President Donald Trump from further military action against Iran.

The dollar was set to post its best week in two

months, making gold more expensive for holders of other currencies. Gold, often considered a safe investment during political and economic turmoil, surged above $1,600 on Wednesday after Iran launched missile strikes on U.S. forces in retaliation for the killing of its top commander in a drone attack. On the trade front, a "Phase 1" trade deal between Washington and Beijing could be signed shortly after Jan. 15, Trump said on Thursday. "Fundamentals for gold are turning a little bit less supportive, as no one knows about the U.S. Federal Reserve's next move and the trade optimism is kind of helping the global economy gather steam," Fertig said. Central bank monetary strategy will be a key driver for gold going forward, he added. Lower interest rates reduce the opportunity cost of holding non-yielding bullion. Investors are now awaiting U.S. non-farm payrolls due at 1330 GMT for further clues on the health of the world's largest economy. "A break of $1,540 implies that a deeper correction to $1,520 could occur," Jeffrey Halley, senior market analyst, OANDA said in a note. Indicative of sentiment, holdings of the world's largest

gold-backed exchange-traded fund, SPDR Gold Trust , fell

0.5% to 882.12 tonnes on Thursday.

Elsewhere, palladium was up 0.8% at $2,123.62 per

ounce, having hit a record peak of $2,149.50 in the previous session on supply constraints. The metal was still on track for its biggest weekly rise since mid-June, up nearly 7% so far.

Silver was little changed at $17.91 per ounce, but

was on track for its first weekly decline in five. Platinum rose about 1% to $975.66 per ounce.

(Reporting by Diptendu Lahiri in Bengaluru; Editing by Jan Harvey and Jane Merriman)