PRECIOUS-Gold rebounds above $1,700/oz on economic optimism

* Better economic sentiment boosts inflation-hedge buying

* Eyes on next week's Bank of Japan policy meeting

* Dealers track seasonal Indian demand before Diwali

(Updates throughout, changes byline, dateline changed to NEW YORK from LONDON) NEW YORK, Oct 25 (Reuters) - Gold rose above $1,700 an ounce on Thursday, a day after it fell under that, in reaction to encouraging United Kingdom GDP growth data and expectations the Bank of Japan will further loosen its monetary policy. Bullion, a traditional inflation hedge, rose after data showed Britain posted its strongest quarterly economic growth in five years, although temporary effects may have masked a weaker underlying picture. ``The nice U.K. report suggested that the global economy is rebounding slowly, and the fund liquidation we saw earlier this week seems to have dried up,'' said Bill O'Neill, partner of commodity investment firm LOGIC Advisors. Gold rebounded from a seven-week low hit on Wednesday after the U.S. Federal Reserve stuck to its plan to keep stimulating growth until the job market improves but made few surprises.

Spot gold was up 0.6 percent at $1,711.30 an ounce by 1:23 p.m. EDT (1723 GMT), rebounding from Wednesday's low of $1,698.39. U.S. COMEX gold futures for December delivery were up $10.50 an ounce at $1,712.10, with trading volume to finish in line with its 30-day average, preliminary Reuters data showed. Bullion rallied to an 11-month peak above $1,795 an ounce in early October on optimism after the Fed's latest program of purchasing mortgage-backed debt. Momentum has since stalled, leaving prices vulnerable to swings in wider markets, with weak global economic data helping send prices below $1,700. Also, speculation that the Bank of Japan will unveil further monetary stimulus boosted gold. Sources told Reuters the Bank of Japan is expected to ease monetary policy next week by expanding asset purchases. Silver climbed 1.2 percent at $32.03 an ounce.

INDIAN BUYING EYED The lower prices were also drawing in new buyers, with dealers anticipating a pickup in demand from India before the Hindu festive season peaks next month with Diwali. Weddings also take place during this period, with gold jewellery an essential part of bridal dowries from Indian parents. The second half of November is an auspicious period for weddings in India. In official-sector activity, IMF data showed Venezuela and Russia cut holdings, taking advantage of the historically high price of gold. Among platinum group metals, platinum was up 0.5 percent at $1,561.75 an ounce, while palladium gained 1.7 percent to $599.70 an ounce. Prices at 1:23 p.m. EDT (1723 GMT)

LAST NET PCT YTD CHG CHG CHG US gold 1712.10 10.50 0.6% 9.3% US silver 32.070 0.450 1.4% 14.9% US platinum 1568.60 5.90 0.4% 12.1% US palladium 603.70 10.95 1.9% -8.0%

Gold 1711.30 9.37 0.6% 9.4% Silver 32.03 0.37 1.2% 15.7% Platinum 1561.75 7.25 0.5% 12.1% Palladium 599.70 10.30 1.7% -8.1%

Gold Fix 1715.50 0.50 0.0% 9.0% Silver Fix 32.08 13.00 0.4% 13.8% Platinum Fix 1572.00 10.00 0.6% 13.8% Palladium Fix 605.00 1.00 0.2% -4.9%

(Additional reporting by David Brough in London; Editing by Bob Burgdorfer)