* Markets still uncertain over timeframe for Fed rate hike
* Dollar index surrenders early gains to steady
* Paulson & Co cuts stake in biggest gold ETF
* GRAPHIC: http://link.reuters.com/dub25t (Updates throughout, changes dateline, pvs MANILA)
By Jan Harvey
LONDON, Aug 17 (Reuters) - Gold firmed on Monday, building on its biggest weekly rise in three months, on lingering uncertainty over the implications of China's yuan devaluation.
Concerns over China sparked a rally in gold to its highest since mid-July at $1,126.31 an ounce last week, in the wake of Beijing's mini-devaluation of the yuan.
Analysts speculated that a weakening Chinese currency could prompt the Federal Reserve to postpone a rise in U.S. interest rates, which had been expected as soon as next month.
Expectations for a rise in rates this year, which would lift the opportunity cost of holding gold while boosting the dollar, pushed the metal to a 5-1/2-year low of $1,077 last month.
Spot gold was up 0.3 percent at $1,116.55 an ounce at 1106 GMT, while U.S. gold futures GCv1 for December delivery were up $3.20 an ounce at $1,115.90.
"The market is digesting what longer-term ramifications this devaluation has," Societe Generale (PARIS:SOGN) analyst Robin Bhar said. "It has been comforted by the fact that the yuan rose in the last few days because of soothing comments from the PBOC, but it is convinced that this is a longer-term threat."
"It was unclear what the Fed was going to do with rates even before this, given the unpredictability of the U.S. data. Now there is even more uncertainty. What's critical for gold is whether we get any more safe-haven bids coming out, or whether rallies will be sold into."
Minutes from the Fed's July 28-29 meeting on Wednesday will offer vital clues about its plan to hike rates for the first time since 2006. Rebounding retail sales, solid jobs growth and rising construction all point to a move next month.
Relief over stability in China's yuan exchange rate helped European stocks bounce back from their worst week in six, while the dollar steadied off earlier highs.
A filing showed on Friday that hedge fund Paulson & Co cut its stake in the world's biggest gold-backed exchange-traded fund in the second quarter of 2015, after keeping it unchanged for six straight quarters.
Hedge funds and money managers sharply cut their net short position in COMEX gold contracts in the week ended Aug. 11, but short positions remain "crowded", Barclays (LONDON:BARC) Capital said in a note.
"We continue to see extremely short positioning as a potential source of volatility for gold," it said.
Spot silver XAG= was up 0.1 percent at $15.23 an ounce, while platinum XPT= was flat at $989.25 an ounce and palladium XPD was little changed at $615.40.