Gold hits 2-week high on mounting inflation worries, softer dollar

FILE PHOTO: Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York

By Kavya and Guduru

(Reuters) - Feb 10 (Reuters) - Gold prices touched their highest level in two-weeks on Thursday, supported by a weaker dollar and as data showing a spike in U.S. consumer prices boosted the metal's appeal as a hedge against inflation.

Spot gold XAU= prices fell as much as 0.6% after hotter-than-expected U.S. inflation data supported the case for aggressive rate hikes, but recouped losses to trade up 0.5% at $1,841.57 per ounce by 12:01 p.m. ET (1701 GMT).

U.S. gold futures GCv1 rose 0.2% to $1,840.90.

"A rising interest rate environment does nip at the heels of the gold market," said David Meger, director of metals trading at High Ridge Futures.

"However, the other side of that coin is a confirmation of the ongoing inflationary trend that we believe is the underlying fundamental push behind gold's recent move."

The dollar .DXY slipped 0.3% to a near one-week low, making bullion less expensive for holders of other currencies. USD/

While gold is considered a hedge against soaring inflation, a resultant hike in interest rates would increase the opportunity cost of holding non-yielding bullion.

The U.S. consumer price index jumped 7.5% in the 12 months through January, the biggest year-on-year increase since 1982, topping expectations of a 7.3% rise. (Full Story)

Federal funds rate futures increased the chances of a half percentage-point tightening by the U.S. Federal Reserve at next month's policy meeting following the data. (Full Story)

Meanwhile, benchmark 10-year U.S. Treasury yields US10YT=RR topped 2% for the first time in 2-1/2 years. US/

"I guess with market participants now pricing in six rate hikes this year, there is some concern that it might impact economic growth down the road, and that is supporting the gold price," UBS analyst Giovanni Staunovo said.

Wall Street's main indexes dropped on Thursday, with Big Tech leading declines. .N MKTS/GLOB

Elsewhere, spot silver XAG= rose 1.6% to $23.68 per ounce, platinum XPT= climbed 1.9% to $1,053.45, and palladium XPD= advanced 1.4% to $2,310.79.

(Reporting by Seher Dareen in Bengaluru; Additional reporting by Swati Verma; Editing by Shailesh Kuber and Subhranshu Sahu)