* Gold on track for 3rd daily decline
* Platinum, palladium hit 2-month lows
* Comments by Fed chief Powell bring gold off session lows
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl (Recasts throughout; updates prices, headline; adds comment,NEW YORK to dateline)
By Renita D. Young and Jan Harvey
NEW YORK/LONDON, March 1 (Reuters) - Gold prices fell about1 percent on Thursday and hit two-month lows during the session,pressured as the dollar shot to a six-week high and investorsbraced for expected U.S. interest rate hikes after FederalReserve Chairman Jerome Powell testified before Congress thisweek.
Gold was on track for its third straight daily decline.Palladium and platinum both hit two-month lows, extending lossesthat began earlier this week when a German court ruled thatcities can ban the most heavily polluting diesel cars from theirstreets. Diesel-burning autos use those metals asautocatalysts. gold XAU= fell 0.9 percent at $1,306.44 per ounce by1:42 p.m. EST (18:2 GMT), while U.S. gold futures GCv1 forApril delivery settled down $12.70, or 1 percent, at $1,305.20.Spot prices earlier hit their weakest since Jan. 2 at $1,304.61.
Gold bounced off session lows after Federal Reserve ChairJerome Powell told the Senate Banking Committee the U.S. centralbank did not see evidence of a decisive advance in wages. His remarks tempered some market concerns after histestimony on Tuesday sparked worries about more interest ratehikes, sending gold lower.
Higher interest rates discourage investing in gold, whichdoes not bear interest.
Still, the dollar rose after solid U.S. economic data stokedexpectations the Fed could raise interest rates as many as fourtimes this year. A stronger dollar pressures gold, making itmore expensive for holders of other currencies.
"We're down on the stronger dollar today, and we're stillhearing interest rate expectations. The euro slipped afterEuropean inflation numbers showed inflation was not picking upas much as expected," said Chris Gaffney, president of worldmarkets at EverBank.
But Powell's latest comments struck a more dovish tone,Gaffney said. Still, the dollar kept near its six-weekhigh. FRX/
Capital Economics analyst Simona Gambarini said that asinflationary pressures build, the Fed will hike interest ratesby more to prevent inflation from accelerating.
From a technical perspective, gold was on the defensive afteragain failing to break above resistance at $1,362 an ounce inmid-February, Commerzbank (DE:CBKG) said in a note.
Silver XAG= dropped 0.7 percent to $16.29 an ounce,hitting $16.16, its lowest since Dec. 22.
Platinum XPT= was down 2.8 percent at $955.90 per ounceafter touching a two-month low at $950.50 and palladium XPD= dropped 6.3 percent to $976.97, touching a 2-1/2 week low of$976.
In addition to worries about a potential clampdown on dieselvehicles in Germany, "the overall lack of growth in the Europeaneconomy may also be weighing," Gaffney said.