* Risk appetite returns to skittish markets
* Palladium prices slump to 5-1/2 year low
* GRAPHIC - 2016 commodities: http://link.reuters.com/reb25t (Updates prices; adds comment, second byline, changes dateline, previous LONDON)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, Jan 12 (Reuters) - Gold fell for a third straight session on Tuesday as a rebound in European and U.S. stock markets undermined the metal's appeal as a haven from risk, and as the dollar strengthened against a basket of currencies.
Spot gold XAU= was down 0.3 percent at $1,090.30 an ounce at 2:39 p.m. EST (1939 GMT), while U.S. gold futures GCv1 for February delivery settled down 1 percent at $1,085.20 an ounce.
The metal pared losses as U.S. and European shares came off their highs when depressed oil prices failed to sustain a rally, while the U.S. dollar .DXY rose for the third straight session. The rise in stocks suggested risk appetite is recovering after last week's rout. MKTS/GLOB
"(We're) looking for gold to perhaps get down to the $1,055-1,060 level as we expect a bounce in the equity markets to continue on account of earnings that likely will be no worse than estimates, stabilizing macro readings from a number of countries, including China ... and a possible jump in oil," said INTL FCStone analyst Edward Meir.
The metal's early January rise ran out of steam late last week after prices hit resistance at their 100-day moving average. Gains have been capped by concerns over higher U.S. interest rates. Since the U.S. Federal Reserve raised rates in December, attention has shifted to how many hikes will follow in 2016.
"The Chinese stock market crash and the unease it's created ... lifted gold prices higher," Natixis analyst Bernard Dahdah said, referencing last week's rally that lifted prices to two-month highs. "But generally, (we expect) gold to be below $1,000 this year. The market will be focused on what the Fed decides."
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares (N:GLD), rose 2.1 tonnes on Monday, data from the fund showed. GOL/ETF
Among other precious metals, palladium XPD= took the biggest dive, sliding 6.3 percent to a 5-1/2 year low of $449.55 an ounce before paring losses to $473.40 an ounce.
"Concerns over China have continued to dominate pricing trends across industrial and PGM metals since the start of the year," Citi Research said in a note.
"An added bearish factor for palladium has been investor concerns over the impact of rising interest rates on auto sales in the U.S., a key gasoline market. Following a record year for U.S. car sales in 2015, slower 2016 U.S. auto sales were already hardwired into most market forecasts."
Silver XAG= was down 0.3 percent at $13.82 an ounce, while platinum XPT= was down 1.2 percent at $832.95 an ounce.