* Spot gold hits highest in two-weeks
* Spot gold set for biggest daily gain in a month
* Dollar index down nearly 0.4 pct
* Spot prices poised to end 2016 higher (Updates prices, adds details)
By Swati Verma
BENGALURU, Dec 29 (Reuters) - Gold prices rose to their highest in two weeks on Thursday, as the U.S. dollar fell, but gains were limited on expectations of more rate hikes by the U.S. Federal Reserve next year.
Spot gold XAU= was up 0.5 percent at $1,147.56 an ounce by 0631 GMT, after reaching its highest since Dec. 14. at $1,149.84 earlier in the session.
The metal was also on track for its biggest one-day rise since Nov. 28.
U.S. gold futures GCcv1 were up 0.7 percent at $1,148.50 per ounce.
"I think it's because of the dollar, which has weakened a little bit," said Helen Lau, an analyst at Argonaut Securities in Hong Kong.
The dollar index .DXY , which measures the greenback against a basket of currencies, eased about 0.4 percent at 102.910.
The dollar sagged against the yen on Thursday, weighed down by U.S. yields slipping to two-week lows and an ebb in risk appetite that favoured the safe-haven Japanese currency. USD/
Gold was poised to end the year up after three straight annual declines. Bullion has risen over 8 percent so far this year despite an 8 percent drop in November.
"With interest rates rising in the U.S., gold will be a less attractive investment, and this explains some of the weakness the commodity has been facing in the recent months," said Mihir Kapadia, CEO of London-based Sun Global Investments Ltd.
The Federal Reserve raised U.S. interest rates earlier this month for the first time in a year and signalled three more increases next year from the previous projection of two.
Gold 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.
"Trading conditions should remain fairly uneventful for the balance of the week," INTL FCStone analyst Edward Meir said in a note.
"But heading into next week, we think the Italian bank rescue and the direction of the Chinese yuan will likely dictate near-term pricing in gold, especially if equity markets start to get nervous about either of these two developments." Gold Exchange, the world's biggest physical bullion exchange, said on Wednesday it will curb the amount of gold investors can trade at one time, a move analysts said would limit institutional investors' influence on prices. other precious metals, silver XAG= rose for a third straight session, up 0.7 percent at $16.12 an ounce. Platinum XPT= was up 0.9 percent at $905.20, while palladium XPD= gained 1.1 percent at $672.70 an ounce.