PRECIOUS-Gold resumes retreat on dollar strength with all eyes on Fed

(Recasts, adds comment, updates prices)

* Dollar hits three-week peak

* Silver set for second week of declines

* Palladium down about 6% this week

By Arundhati Sarkar

Sept 17 (Reuters) - Gold's slight rebound on Friday from a sharp selloff in the previous session lost steam as the dollar gained, putting it on course for a second weekly dip with investors focused on the U.S. Federal Reserve's tapering strategy.

Spot gold was down 0.2% at $1,750.70 per ounce by 10:40 am EDT (1440 GMT). U.S. gold futures eased 0.4% to $1,750.10.

A surprise gain in August U.S. retail sales earlier in the week rekindled early Fed tapering fears, boosting the dollar and driving a nearly 3% drop in gold on Thursday.

The market already believes that the Fed will cut back on bond purchases, and that would drive (U.S. Treasury) yields higher, said Daniel Pavilonis, senior market strategist at RJO Futures.

"This does not bode well for gold, it's most likely going to come back down," Pavilonis said.

He added that the dollar, rather than gold, was benefiting from safe-haven demand from developments in China surrounding property developer Evergrande.

The dollar climbed to a three-week peak, making gold more expensive for other currency holders, while benchmark Treasury yields also gained.

"Gold has been a frustrating, mean-reverting product most of the time," a NY-based trader said, adding that it was likely to be hemmed in the $1,750-80 range going into the Fed meeting.

The Fed's policy-setting committee will meet on Tuesday and Wednesday.

A strong hawkish shift could prompt another knee-jerk, downward reaction in gold even if it has been priced in already, said StoneX analyst Rhona O'Connell.

Unwinding of economic support measures not only dim gold's status as a safe haven, but any subsequent increase in interest rates would translate to the higher opportunity cost of holding non-yielding assets like bullion.

Silver was down 2% at $22.47 per ounce, after hitting its lowest level in more than a month on Thursday.

Platinum rose 1.3% to $945.33, while palladium fell 0.9% to $2,015.18. (Reporting by Arundhati Sarkar and Arpan Varghese in Bengaluru; Editing by Aditya Soni)

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