* Gold gains, but headed for monthly drop
* Stronger U.S. economic data backs Fed's rate rise view
* Palladium hits fresh eight-month high
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl (Recasts; updates throughout; adds comments, second byline, NEW YORK to dateline)
By Renita D. Young and Zandi Shabalala
NEW YORK/LONDON, Sept 28 (Reuters) - Gold inched higher but was on track for its longest monthly losing streak since January 1997 as the U.S. dollar firmed against the euro after Italy's budget jitters threatened the European currency.
Bullion is down more than 0.5 percent in September, its sixth straight monthly loss.
Spot gold XAU= increased 0.9 percent to $1,193.32 per ounce by 1:43 p.m. EDT (1743 GMT), but touched its lowest since Aug. 17 at $1,180.34 earlier in the session.
December U.S. gold futures GCcv1 settled up $8.80, or 0.7 percent, at $1,196.20 per ounce.
Traders said weaker-than-expected U.S. core personal consumption expenditures (PCE) data, a measure of inflation, sparked bargain hunting in gold. disappointing core PCE raises questions about the future of inflation (in the U.S.), said Tyler Richey, co-editor of the Sevens Report. "At this point, inflation numbers are helping gold claw back from the post-Fed close."
The U.S. Federal Reserve raised interest rates on Wednesday and said it planned four more increases by the end of 2019 and another in 2020. Spot gold prices later closed down 0.6 percent to $1,194.06 per ounce, their lowest since Sept. 11. GOL/
Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion. They also boost the dollar, in which the metal is priced.
The greenback climbed to a two-week peak on Friday versus a basket of major currencies, boosted by gains against the euro amid concerns about the Italian budget and a U.S. interest rate outlook. dollar's rise) was more of a result of the euro weakness than real dollar strength," Richey added.
Still, other U.S. data released on Friday supported the view of an economy that is on a stable growth path. U.S. durable goods rose 4.5 percent in August, rebounding from a revised 1.2 percent drop the month before. USD/ is down more than 13 percent from an April high, largely because of the stronger dollar, which has been boosted by a vibrant U.S. economy and fears of a global trade war. Investors have bought the greenback instead of gold as a safe investment.
Among other precious metals, palladium XPD= declined 0.3 percent at $1,078.40 after touching a fresh eight-month high at $1,094.60 an ounce. It was closing the month up more than 9 percent.
Silver XAG= rose 3.4 percent at $14.68 per ounce and headed for its first monthly rise in four.
Platinum XPT= increased 1.1 percent at $817.80 per ounce and headed for its first monthly rise in eight.