Gold sits near 10-1/2 month low as dollar rallies on Fed

(Reuters) - Gold prices held near their weakest level in 10-1/2 months on Friday as the U.S. dollar surged to multi-year peaks after the Federal Reserve raised interest rates and projected further rate hikes in 2017.

FUNDAMENTALS

* Spot gold was steady at $1,128.70 an ounce by 0101 GMT, after touching its weakest level since Feb. 2 at $1,122.35 in the previous session. Gold fell nearly 1.4 percent on Thursday, its biggest percentage fall in three weeks.

* The metal was down more than 2.5 percent for the week, on track for its sixth consecutive weekly decline.

* "U.S. gold futures were up 0.1 percent at $1,130.90 an ounce, after falling nearly 3 percent in the prior session."

* The dollar stood tall on Friday, on track for hefty gains for the week, on expectations of more U.S. Federal Reserve interest rate hikes.

* The dollar index , which measures the greenback against a basket of currencies, was up 0.1 percent at 103.140.

* Rising rents lifted underlying U.S. inflation in November, pointing to a steady build-up of price pressures in the economy that could support more interest rate increases from the Federal Reserve next year.

* The prospect of further monetary policy tightening in 2017 was also bolstered by other data on Thursday showing a drop in the number of Americans filing for unemployment aid last week.

* Holdings of the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 0.84 percent to 842.33 tonnes on Thursday.

* Russia's Petropavlovsk downgraded its 2016 gold output forecast due to mining disruptions at Pioneer, the company's largest mine.

* Silver miner Hochschild Mining Plc said production at its Pallancata silver mine in Peru had been temporarily suspended, as members of a local community blocked a road and demanded renegotiation of agreements for land easements.

* The Royal Mint is to launch its first range of platinum bullion coins and bars next year, it said in a statement on Thursday, in partnership with the World Platinum Investment Council.

(Reporting by Swati Verma in Bengaluru; Editing by Richard Pullin)