* U.S. dollar index sinks to 10-month low
* Gold faces resistance at $1,247, 100-day moving average
* Indian gold imports surge ahead of tax change
* ETF holdings still falling (Adds comments, details on gold/silver ratio, updates price move; adds NEW YORK dateline)
By Devika Krishna Kumar and Pratima Desai
NEW YORK/LONDON, July 18 (Reuters) - Gold prices hit a more than two-week high on Tuesday, supported by expectations of stronger demand from the physical market and as the dollar fell on fading prospects of an imminent increase in U.S. interest rates.
The dollar sank to a 10-month low against a basket of currencies, making dollar-denominated metals cheaper for holders of other currencies, which could boost demand. FRX/
The greenback sank on reduced confidence in U.S. President Donald Trump's agenda and jitters over hawkish central banks abroad.
Spot gold XAU= was up 0.7 percent at $1,242.41 an ounce by 2:15 p.m. EDT (1815 GMT), having touched $1,244.30, its highest since June 30. U.S. gold futures GCcv1 settled 0.7 percent to $1,241.90.
"The Senate's failure to repeal Obamacare has amplified concerns that the Trump economic agenda will be more difficult to implement even though the GOP holds a tenuous majority in Congress," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
"That is pressuring U.S. yields and driving the dollar towards year-long lows which creates a positive environment for gold, which has rallied steadily."
Data from consultancy GFMS shows India's gold imports climbed to an estimated 75 tonnes in June from 22.7 tonnes a year earlier. For the first half of the year imports rose to 514 tonnes, up 161 percent year on year. analysts said the jump was caused by Indian consumers buying ahead of July's increase in the goods and services tax on gold to 3 percent from 1.2 percent.
"We see gold averaging around $1,300 over the third quarter," said ING commodities strategist Warren Patterson.
"Indian imports are rising after the very poor year last year. We expect that trend to continue even with the tax changes."
Weighing on the dollar is also doubt that the Federal Reserve would be able to raise interest rates again this year, while other central banks including the European Central Bank and Bank of England have signaled a more hawkish bent toward tightening policy.
A move above technical resistance at $1,250 could potentially see gold move back to the $1,280-90 highs that was seen twice this year, especially with the Fed certain to be cautious at the July meeting, Wong said.
High interest rates would reduce demand for non-interest bearing gold.
However, investors are still retreating from physical gold. Holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, slipped to 827.07 tonnes on Monday, down from 828.84 tonnes on Friday. GOL/ETF
Meanwhile the price of silver XAG= gained 1.4 percent to $16.29 an ounce after touching a two-week high at $16.34.
The Gold/Silver ratio hit a 15-month high on July 7 and total silver ETF holdings have since increased by over 2 percent, RBC Capital Markets said in a note.
"We view the acceleration of inflows into physical silver ETFs as a positive sign fundamentally, and expect ongoing inflows as we enter a seasonally strong period for precious metals during Q3 ahead of the Indian festive period in October."
Platinum XPT= gained 0.7 percent to $927.5 while palladium XPD= slipped by 0.02 percent to $864.85.