* Dollar falls from 6-1/2 month peak
* Italy crisis sparks stock sell-off
By Renita D. Young and Zandi Shabalala
NEW YORK/LONDON, May 30 (Reuters) - Gold prices edged higher on Wednesday as the dollar wilted after U.S. data showed the U.S. economy slowed slightly more than initially expected in the first quarter while political uncertainty lingered in Italy.
U.S. gross domestic product increased at a 2.2 percent annual rate, the Commerce Department said in its second estimate of first-quarter GDP, instead of the previously reported 2.3 percent pace. news knocked the dollar .DXY lower against a basket of leading currencies, away from near 6-1/2 month highs. A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies.
"This has supported the EUR/USD exchange rate, which in turn has underpinned the price of the positively-correlating yellow precious metal," said Forex.com analyst Fawad Razaqzada.
Spot gold XAU= was up 0.32 percent at $1,302.17 per ounce by 1:32 p.m. EDT (1732 GMT), while U.S. gold futures GCcv1 for June delivery settled up $2.50, or 0.2 percent, at $1,301.50 per ounce.
Though gold prices edged higher, easing concerns of political strife in Italy dented the appeal for safe haven gold purchases, said Rob Haworth, senior investment strategist for US Bank Wealth Management.
"Today we're still following the dollar and gold will probably be under pressure if Italian politics sorts itself out over the next day or two," Haworth said.
Meanwhile, Italy searched for a last-minute exit from almost three months of political turmoil, with its biggest party looking to make a renewed attempt to form a coalition government with the right-wing League. said some uncertainty still remained over Italy even as a resolution was being sought.
"I don't see any market-pleasing resolution to be honest, because a new caretaker government will not last long because it doesn't not have any majority in parliament," said Commerzbank (DE:CBKG) commodity analyst Carsten Fritsch.
U.S. benchmark 10-year Treasury yields US/ on Tuesday registered their largest one-day drop since Brexit nearly two years ago. Higher rates generally dent demand for non-interest-paying gold.
China on Wednesday lashed out at Washington's unexpected statement that it is sticking to the threat of imposing tariffs on $50 billion of Chinese goods, saying Beijing was ready to fight back in any trade war. Capital Economics' Simona Gambarini said the potential trade war between China and the United States was mostly priced into gold, which would need an escalation or resolution to become a catalyst to prices again.
Meanwhile, spot silver XAG= was up 0.9 percent at $16.53 an ounce.
Platinum XPT= rose 0.5 percent at $908.60 an ounce, while palladium XPD= gained 0.2 percent at $981.22.