* Gold notches biggest daily percentage rise in 3 months
* Spot prices poised to end 2016 higher
* GRAPHIC-2016 metal returns: http://tmsnrt.rs/2eqHKkL (New throughout, adds comments, forecast, milestones, adds NEW YORK dateline)
By Devika Krishna Kumar and Clara Denina
NEW YORK/LONDON, Dec 29 (Reuters) - Gold prices rose 1 percent to their highest in more than two weeks on Thursday as U.S. bond yields declined on waning risk appetite, reducing the U.S. dollar's appeal against safe-haven currencies such as the Japanese yen.
Bullion bounced back on Thursday after hitting a 10-month low on Dec. 15 as solid U.S. economic data gave the U.S. Federal Reserve the confidence to raise interest rates for the first time in a year.
"Gold is not out of the woods yet but yields are a bit lower and the dollar is weaker, especially against the yen and yen-gold has showed a phenomenal correlation since the U.S. election," Ole Hansen, SaxoBank's head of commodity research, said.
Gold fell more than 8 percent in November as U.S. Treasury yields rose after Donald Trump's election led to speculation his commitment to infrastructure spending would spur growth.
Spot gold XAU= hit $1,159.50 an ounce during the session, the highest since Dec. 14, and was up 1.2 percent at $1,155.45 by 2:32 pm EST (1451 GMT). The metal also notched its biggest daily percentage gain since late September.
U.S. gold futures GCcv1 ended the session up 1.5 percent at $1158.1 an ounce.
The dollar .DXY fell 0.7 percent against a basket of six main currencies, mostly due to the yen's strength and profit taking after recent gains. The benchmark 10-year U.S. Treasury yield US10YT=RR slipped to two-week lows as the bond market sell-off fizzled. MKTS/GLOB
The U.S. central bank has signalled that it expected three more increases next year, up from a previous projection of two.
Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding assets, while boosting the dollar, in which it is priced.
However, gold prices are still 8 percent higher than at the start of the year and were heading for the first annual increase after three years of declines.
"The outlook projected by the U.S. Federal Reserve along with the strong employment figures indicate positive growth for the economy as justified with the interest rate hikes. Hence gold has underperformed, and could close at under $1,145 this year," said Mihir Kapadia, chief executive of Sun Global Investments.
However, if the incoming U.S. administration implements inward looking policies, gold may touch $1,500 per ounce, propelled by investor fears, he said.
Gold is usually seen as a refuge from riskier assets such as equities.
China's net gold imports in November via its main conduit Hong Kong dropped 17.8 percent from October to the lowest in 10 months, data showed on Thursday. other precious metals, silver XAG= was up 0.62 percent at $16.11 an ounce. Platinum XPT= was 0.2 percent lower at $895.49, while palladium XPD= climbed 1.09 percent to $672.47 an ounce.
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