PRECIOUS-Gold firms after US data boosts rate cut bets

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U.S. PPI data due at 1230 GMT

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Palladium set for weekly gains

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Indian gold dealers charge premium after two months

(Adds detail on Asia physical gold demand, updates prices)

By Ashitha Shivaprasad

Oct 11 (Reuters) - Gold climbed on Friday after a higher jobless claims report firmed bets for a Federal Reserve rate cut next month, while investors awaited U.S. Producer Price Index (PPI) data for further direction.

Spot gold was up 0.5% at $2,642.46 per ounce by 0738 GMT but eased 0.4% for the week. Prices hit a record high of $2,685.42 last month.

U.S. gold futures gained 0.8% to $2,660.30.

The dollar index fell from a two-month high, making bullion more attractive for other currency holders.

U.S. consumer prices rose slightly more than expected in September, while jobless claims increased to 258,000 for the week ended Oct. 5, above estimates of 230,000.

All eyes are now on the PPI data, due at 1230 GMT.

"Gold is seeing short-term gains as recent data has been positive. If the PPI data comes in softer, gold's momentum could continue upward," said Kelvin Wong, OANDA's senior market analyst for Asia Pacific.

"From a technical view point, in the near-term, gold could retest $2,657 and if it breaks above that, then (it could) test levels near its all-time high."

After the inflation and labour reports, investors now expect a 84.3% chance of a 25-basis-point rate reduction in November and a 15.7% probability of a status quo, according to CME's FedWatch.

Lower interest rates reduce the opportunity cost of holding bullion.

Elsewhere, Israeli strikes on central Beirut killed 22 people. Analysts said a further deterioration in the Middle East conflict could boost gold, which is considered a safe asset during times of turmoil.

Meanwhile, physical gold dealers in India charged premiums for the first time in two months this week as the festive season attracted demand for jewellery, while Chinese demand remained lacklustre.

Spot silver fell 0.2% to $31.14 and platinum rose 0.8% to $976.55. Palladium firmed 0.7% to $1,076.50 and headed for weekly gains.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Subhranshu Sahu and Sonia Cheema)