* U.S. launches auctions for $258 billion of debt
* Gold expected to fall to $1,326/oz -analyst (Recasts throughout, updates prices, adds comment, adds NEW YORK to dateline)
By Renita D. Young and Eric Onstad
NEW YORK/LONDON, Feb 20 (Reuters) - Gold prices were pressured by a stronger U.S. dollar and rising interest rates on Tuesday, dropping for a third session, but were underpinned by political worries and uncertainty about this week's huge U.S. bond auctions.
The dollar continued its rebound from three-year lows as investors shrugged off worries about the U.S. budget deficit and focused on large U.S. government debt auctions this week. FRX/
"Gold is under pressure form the dollar index rallying significantly and interest rates continuing to rise," said Phillip Streible, senior commodities strategist at RJO Futures.
"I wouldn't be surprised to see gold hold the 50-day moving average at $1,316."
Spot gold XAU= shed 1.3 percent at $1,328.71 an ounce by 1:35 p.m. EST (1835 GMT), dropping to $1,328.26, its lowest since Feb. 14.
U.S. gold futures GCcv1 futures for April delivery settled down $25, or 1.8 percent, at $1,331.20 per ounce.
The U.S. Treasury Department Tuesday sold record amounts of three-month and six-month bills at the highest interest rates for these maturities at auctions in more than nine years, Treasury data showed. U.S. Treasury will sell more than $250 billion worth of new debt this week, which analysts said would be a key gauge of international investors' appetite for U.S. assets.
The dollar has sold off in recent months on worries that the Trump administration's recently passed tax cuts and plans for large government spending would widen the deficit.
Spot gold is expected to fall to the next support level at $1,326, according to Reuters technical analyst Wang Tao. TECH/C
Geopolitical uncertainty, ranging from disunity at the recent Munich security conference to threatened U.S. trade sanctions, may increase safe-haven demand for gold, said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Gold investors are also anticipating the release on Wednesday of the U.S. Federal Reserve's January policy meeting minutes and the Thursday release of the European Central Bank's latest policy meeting minutes.
Meanwhile, silver XAG= slipped 1.2 percent to $16.46 an ounce, hitting $16.44, its lowest since Feb. 14.
Palladium XPD= added 0.1 percent at $1,033.99 an ounce, after rising to the highest since Feb. 2 at $1,050 in the previous session.
A major low was achieved earlier this month when palladium hit $957.75, Stéphanie Aymes, head of technical analysis at Societe Generale (PA:SOGN), said in a note.
"A break past $1,055 will prompt accrued positive signals towards $1,071/78...and more importantly towards the channel upper band at $1,145/55."
Platinum XPT= dropped 0.2 percent to $1,000.20 an ounce after rising to a three-week high of $1,013.60 on Monday.