* U.S. retail sales flat in July
* Dollar falls 0.5 percent vs basket of currencies
* Fed official says U.S. rate hike a possibility this year (Updates prices, adds comment)
By Clara Denina
LONDON, Aug 12 (Reuters) - Gold jumped 1.3 percent on Friday as the dollar retreated further after U.S. retail sales data were unexpectedly flat in July.
Friday's unchanged reading for last month suggested consumer spending was cooling after the second quarter's brisk 4.2 percent rate of increase.
Economists had forecast overall retail sales rising 0.4 percent and core sales climbing 0.3 percent last month. gold XAU= rose to a session high of $1,355.80 an ounce and was up 1 percent at $1,352.11 by 1330 GMT.
"Prices had a new incentive to break higher, with a weaker dollar and lower than expected data from the U.S., which should further discourage the Fed to do anything on rates," Saxo Bank senior manager Ole Hansen said.
"As long as gold stays above $1,300 there is no reason why funds holding big longs should worry too much."
The dollar fell 0.5 percent against a basket of main currencies after data prompted investors to roll back expectations on when the Federal Reserve will raise rates.
Gold is highly sensitive to rising U.S. interest rates, as the opportunity cost of holding the non-yielding asset increases while boosting the dollar, in which it is priced.
San Francisco Fed President John Williams said on Thursday a U.S. interest rate increase this year was still a real possibility as inflation pressures grow. federal funds futures implied traders saw a 43 percent chance the Fed would raise rates at its Dec. 13-14 policy meet, down from a 47 percent chance before the data was released.
Holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, fell 0.03 percent to 972.32 tonnes on Thursday. GOL/ETF
Platinum XPT= rose 0.7 percent to $1,148 an ounce, after falling 3 percent in the previous session.
Palladium XPD= rose 0.4 percent to $688.45 and was set to finish the week with a modest loss. The metal had a rollercoaster week, hitting a 14-month high on Wednesday at $746.10 and posting the biggest one-day rally in more than five months, before tumbling 5 percent on Thursday.
"A further move lower in the platinum group metals could trigger a move below $1,330 for gold in the next few days," trader MKS Pamp said in a note.
Spot silver XAG= gained 0.2 percent to $20.15 an ounce. (Additional reporting By Nallur Sethuraman in Bengaluru; Editing by William Hardy and David Evans)