* Dollar index climbs off seven-week lows
* U.S. new home sales hit 7-month high in Feb
* Palladium climbs to highest price since March 2015 (Updates prices, adds comments, NEW YORK dateline)
By Devika Krishna Kumar and Eric Onstad
NEW YORK/LONDON, March 23 (Reuters) - Gold slipped on Thursday as the dollar firmed, while palladium extended gains to hit a two-year high on economic data and demand from the automobile sector.
Spot gold XAU= was down 0.3 percent at $1,245.26 an ounce by 2:21 p.m. EDT (1821 GMT), retreating from an intraday peak of $1,253.12, its highest since Feb. 28.
U.S. gold futures GCcv1 shed 0.3 percent to $1,246.60.
"The dollar has been a little bit stronger today, interest rates climbed up a touch and the stock market finally gave a positive performance prior to tonight's vote on healthcare - all of which means gold traders have pulled back a little," said George Gero, managing director at RBC Wealth Management.
The dollar index .DXY , which measures the greenback against a basket of currencies, was slightly firmer at 99.769. It had dropped to its lowest in nearly seven weeks at 99.547 on Wednesday.
U.S. stocks rose slightly on Thursday, with gains limited by signs that President Donald Trump was struggling to get enough votes to pass a healthcare bill in Congress, while European shares rose on bank borrowing and oil prices slipped. MKTS/GLOB
The immediate focus is on whether Trump can gather enough support to pass a bill to roll back Obamacare, representing a major test of his legislative ability and whether he can keep his promises to business. rough ride for the healthcare plan could affect Trump's efforts to cut taxes and boost infrastructure, with the potential to drive more investors to gold as a safe haven if stock markets fall, analysts and traders said.
The dollar briefly slipped on Thursday after U.S. jobless claims rose unexpectedly, sending gold temporarily higher. DLR/
But the dollar rebounded after the market realized that jobless levels remained below a level associated with a strengthening labor market. The greenback added gains on news that February U.S. new homes sales hit a seven-month high. a technical standpoint, gold's almost "V-shaped recovery" from the key $1,200 handle suggests more gains are likely, analysts said.
Palladium XPD= climbed to a peak of $808.70, its highest since March 10, 2015, before paring gains to $799.60 for a rise of 1.7 percent.
"Palladium has a completely different dynamic" to other precious metals, said ABN Amro commodities strategist Georgette Boele in Amsterdam. "It is far more related to economic data releases, the expectations for the economy, both emerging and developed."
The European Central Bank said on Thursday that economic recovery in the euro zone was gaining ground while data last week indicated strong U.S. factory output, a rebound in U.S. consumer sentiment and a rise in European car sales in February. has been very exciting now for weeks and I think it's been doing very well with additional demand coming from the need for other vehicles besides gasoline," Gero said.
Palladium is mainly used in catalytic converters that curb pollution from vehicle exhausts.
Spot silver XAG= rose 0.3 percent to $17.56, while platinum XPT= advanced 0.3 percent to $962.40.