* Palladium off 16-1/2-year peak hit in previous session
* Dollar bounces back from 2-1/2-year low (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Maytaal Angel
NEW YORK/LONDON, Aug 30 (Reuters) - Gold steadied on Wednesday, as a stronger dollar pushed the metal off Tuesday's 9-1/2-month high, but the precious metal remained above $1,300 on renewed tensions between Washington and North Korea.
The dollar index .DXY rose 0.6 percent versus a currency basket following stronger-than-expected private payrolls data. The move marked the greenback's recovery from a 2-1/2-year low hit Tuesday after Pyongyang fired a ballistic missile over Japan. USD/ President Donald Trump on Wednesday said "talking is not the answer" to the tense standoff with North Korea over its nuclear missile program. His defense chief, however, swiftly asserted that the United States still has diplomatic options. stronger dollar, seen as a safe haven asset, makes dollar-priced gold costlier for non-U.S. investors.
"Sentiment in (gold) futures has recently shifted from bearish to bullish and with the break of $1,300 we think this will continue for a while," said Carsten Menke, analyst at Julius Baer.
"(But) currency-related headwinds should return to gold this year, plus we don't see strong investment demand. This puts the whole rally above $1,300 on a rather weak footing (longer term)."
Spot gold XAU= slipped by 0.1 percent to $1,307.51 an ounce by 2:08 p.m. EDT (1808 GMT). On Tuesday, the price jumped to $1,325.94, the highest since Trump was elected U.S. president. It was on track to close August up by around 3 percent, its second straight monthly gain.
COMEX gold futures GCcv1 settled down 0.4 percent at $1,314.10.
"A perfect storm of escalating regional tensions around North Korea as well as an increasingly unpredictable Trump policy outlook, low (interest) rates and a weak U.S. dollar have boosted COMEX gold prices above our third-quarter base-case average of $1,235/oz," said Citi Research in a note.
U.S. disarmament ambassador Robert Wood, addressing the U.N.-sponsored Conference on Disarmament, called on Wednesday for "concerted action" to pressure North Korea into abandoning its banned nuclear and missile programs by fully enforcing economic sanctions.
"Do we think that the geopolitical issue will intensify? No, we don't, but we cannot rule it out either," said Dominic Schnider at UBS Wealth Management in Hong Kong.
Elsewhere, holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD , rose 0.25 percent on Tuesday from Monday, data showed. other precious metals, silver XAG= rose 0.2 percent to $17.37 per ounce. Platinum XPT= fell 0.6 percent to $985.95 per ounce, while palladium XPD= dipped 1 percent to $933.75 per ounce, falling from the prior session's 16-1/2-year high.