* Palladium hits fresh 2-week low
* SPDR gold holdings down 0.7 percent on Monday (Updates prices, adds comment)
By Sethuraman N R
Aug 9 (Reuters) - Gold slipped on Tuesday and continued to hover near one-week lows hit in the previous session as the dollar firmed amid increasing possibilities of a rate hike by the U.S. Federal Reserve this year.
Spot gold XAU= eased 0.2 percent to $1,331.97 an ounce by 0632 GMT. The metal touched its lowest since July 29 at $1,329.55 on Monday.
U.S. gold GCcv1 edged down 0.3 percent to $1,337.60 an ounce.
The dollar index .DXY , which gauges the greenback against a basket of six major rivals, erased earlier slight losses and edged up 0.1 percent to as much as 96.514. USD/
"Gold prices are in defensive mode after suffering quite a bit on Friday. It reflects market's expectations of a rate hike by the U.S. Fed in December," said Vyanne Lai, an economist at National Australia Bank.
"However, the prices are not going to weaken significantly in the near term."
Prices have been resilient in the face of a rising U.S. dollar and prospects of a rate hike as other countries are increasingly looking to raise stimulus, Lai said.
The U.S. economy is at increasing risk of becoming trapped in a prolonged phase of slow growth that points to the need for lower interest rates than previously expected, Federal Reserve policymaker Jerome Powell was quoted as saying. is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.
There were significant long positions last week and the liquidation after the non-farm payrolls data put pressure on prices, a Hong Kong-based precious metals trader said.
"Investors are still putting more money into gold. There is something on the horizon that they should be looking, especially the U.S. elections. That will give uncertainty to the markets and will be good for gold."
Holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, fell 0.67 percent to 973.81 tonnes on Monday. GOL/ETF
Asian shares stood atop one-year peaks on Tuesday as a desperate search for yield drove a record inflow into emerging market funds, while oil prices tried to sustain their latest bounce. MKTS/GLOB
Silver XAG= was down 0.2 percent at $19.66 an ounce after touching a near two-week low on Monday.
Platinum XPT= fell 0.5 percent to $1,144.
Palladium XPD= , which touched a fresh two-week low at $685.47, was down 0.7 percent at $685.63.