* Higher equities undermine gold
* SPDR ETF gold holdings fall, physical demand weak
* Palladium extends losses to 3-week low (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Pratima Desai
NEW YORK/LONDON, Jan 26 (Reuters) - Gold fell to a two-week low on Thursday as the dollar firmed and equity markets rallied, but expectations that the greenback's climb may be coming to an end helped limit losses.
Spot gold prices XAU= were down 1 percent at $1,187.93 an ounce by 3:02 p.m. EST (2002 GMT), after tapping $1,184.03, its lowest since Jan. 11. U.S. gold futures GCcv1 settled down 0.7 percent at $1,189.80.
A stronger U.S. currency makes dollar-denominated commodities more expensive for holders of other currencies, potentially curbing demand. USD/
"The dollar is a little bit stronger this morning, yields are up a bit and that's why gold is below $1,200," said Julius Baer analyst Carsten Menke.
U.S. Treasury yields later weakened, but the general strength in equities and yields have been fueled by U.S. President Donald Trump's signals that he plans to increase public spending. Expectations of a boost to growth have recently had a diminishing impact on the dollar. USD/ MKTS/GLOB
"Trump's victory has unleashed one of the strongest expressions of business and financial optimism in history, starkly affecting variables central to gold's short-term trading patterns," said Sprott Asset Management.
"Should our suspicions bear out that reigning euphoria proves short-lived, recent market dislocations will provide excellent entry points for a wide array of investment assets."
Investors abandoning gold can be seen in the holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, which fell 0.6 percent to 799.07 tonnes on Wednesday. GOL/ETF
Also undermining sentiment was weak physical demand in India due to higher prices, while Chinese demand is weaker ahead of the Lunar New Year holiday, traders said.
Palladium XPD= slid 1 percent to $722 an ounce, after touching a three-week low at $711.15. It fell more than 7 percent on Wednesday, its worst one-day fall since April 2013.
"Previously, palladium had failed on three consecutive days to exceed the psychologically important $800 per troy ounce mark, giving rise to a more gloomy technical picture," said Commerzbank (DE:CBKG) Commodity Research in a note.
Palladium is used in autocatalysts and has been boosted by expectations of stronger demand for cars but the outlook for growth is now less bright.
"Car ownership rates in the U.S. peaked a couple of years ago, which means most of the cars sold are just replacement demand," Menke said. "China has cut car subsidies so sales there will probably be lower this year." silver XAG= fell 0.9 percent to $16.79 an ounce, while platinum XPT= inched up 0.08 percent to $978.50.