(New throughout, updates prices, market activity and comments; adds second byline, NEW YORK dateline)
* Chinese currency strengthens, boosting gold
* Gold still headed for 2 pct monthly decline
* Silver, platinum, palladium also down for month
By Renita D. Young and Maytaal Angel
NEW YORK/LONDON, July 31 (Reuters) - Gold prices rose on Tuesday, reversing early losses as the Chinese yuan strengthened against the dollar after a report said the United States and China were trying to restart negotiations to defuse a trade war.
In early trade, a stronger dollar and rising U.S. interest rates had sent bullion falling to its lowest in a week and a half.
"Gold turned positive on the idea that there's a possibility of negotiating with China," said George Gero, managing director of RBC Wealth Management.
"If they do negotiate and something good comes out of it, it is positive for metals, because it would help the Chinese come back into the market and take deliveries. There's been some worry about the Chinese not taking deliveries because of the tariffs and expensive dollar," Gero added.
Spot gold XAU= rose 0.3 percent to $1,224.48 per ounce by 1:43 p.m. EDT (1743 GMT), rebounding after touching its lowest since July 19. The precious metal is heading for a 2 percent monthly decline.
U.S. gold futures GCcv1 for August delivery settled up $2.40, or 0.2 percent, at $1,223.70 per ounce.
"The Chinese currency is preventing (gold) from dropping much further like we saw earlier in the morning," said Ryan McKay, commodities strategist at TD Securities.
The Chinese yuan had been weakening against the dollar, pressuring greenback-denominated gold. That pressure abated, providing gold some support, McKay added. commodities prices have strengthened as the dollar has slowly retreated from recent highs, said David Meger, director of metals trading at High Ridge Futures.
"We've seen a pickup in commodity demand. Some of that is relative to the slight weakness in the dollar," he said. "We expect for commodities to continue to recover off the recent lows."
The dollar was slightly higher versus a currency basket, following a three-month streak of gains, with the U.S. Federal Reserve set to reaffirm the outlook for further gradual rate rises at the end of its two-day monetary policy meeting on Wednesday. FRX/
Higher U.S. interest rates tend to boost the dollar, making dollar-priced gold more expensive for holders of other currencies.
Meanwhile, silver XAG= gained 0.3 percent at $15.53 an ounce, poised to end the month down more than 3 percent.
Platinum XPT= rose 2.1 percent to $841.10 per ounce, headed for a monthly decline of less than 1 percent. Palladium XPD= increased 0.7 percent at $935.30, set to end July down about 2 percent.